Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsels Eden Anderson and Rebecca Bjork with their discussion of significant arbitration rulings in the class action space.
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Episode Transcript
Jerry Maatman: Thank you. Loyal blog readers and listeners for joining our weekly Podcast series. The Class Action Weekly Wire. My name is Jerry Maatman, and I’m a partner at Duane Morris and joining me today are my colleagues, Eden Anderson and Rebecca Bjork. Welcome.
Eden Anderson: Great to be here, Jerry.
Rebecca Bjork: Thanks, Jerry.
Jerry: Today, we wanted to discuss trends and important rulings in the area of arbitration, and specifically where named plaintiffs in class actions are signatories to arbitration agreements that contain class action waivers. What were some of the most significant developments in this space in calendar year 2023?
Eden: Well, while not a class action case, a big development in related PAGA litigation occurred out here in California in 2023. After the U.S. Supreme Court’s decision in Viking River Cruises, there was an open question in California as to whether a PAGA plaintiff whose individual claims are compelled to arbitration retain standing to still pursue their non-individual claims in court, and the California Supreme Court answered that question in the Adolph v. Uber Technologies case. And unfortunately, the answer was not a good outcome for employers.
The California Supreme Court held that PAGA plaintiffs do have standing to pursue non-individual claims in court, even if their individual claims are in arbitration. And as to logistics, the court clarified a few things. First, even though individual PAGA claims may be pending in arbitration and non-individual PAGA claims pending in court, the claims all remain one action, and the court action can be stayed pending the completion of arbitration. And as a practical matter, that’s what we’re seeing happen. And then, second, if the plaintiff loses an arbitration at that juncture, the plaintiff clearly no longer has standing to maintain non-individual PAGA claims. And third, if the plaintiff prevails in arbitration or settles their individual claims, they continue to possess standing to return to court, to pursue non-individual PAGA claims on behalf of others.
Jerry: Thanks, Eden. That sure underscores how vitally important it is for employers given the Adolph ruling to conduct an early assessment as to the value and viability of the named plaintiff’s claim as opposed to running the gauntlet, trying that individual arbitration, losing on at least one claim, and then having the plaintiffs’ lawyer resurrect a representative action and then corral and bring in all the other workers at issue in the case. What are some of the strategies to avoid that result in light of both Viking River and the Adolph decisions?
Eden: Well, but Jerry, as we thought might see happen, some plaintiffs have been alleging that they are aggrieved employees but then disclaiming individual relief trying to avoid arbitration through that pleading tactic. And there’s a recent decision from the California Court of Appeal, Balderas v. Fresh Start Harvesting, that plaintiffs are relying upon in support of that tactic the plaintiff there alleged that she was “not suing in an individual capacity” and, although the trial court felt the plaintiff lacked standing because she wasn’t seeking individual relief, the Court of Appeal disagreed and allowed the case to proceed in court. The Balderas decision was initially unpublished, non-citable, but the plaintiffs’ bar pushed for it to become a published, citable decision. Of course, from the defense perspective this pleading tactic raises some ethical concerns, because you have a plaintiff who is giving up any individual monetary recovery for themselves purely as a forum selection strategy that ends up only benefiting other people including their counsel.
Jerry: Rebecca, are there any other notable decisions in this array of cases from 2023?.
Rebecca: Oh, definitely. The Ninth Circuit also issued an important decision in Chamber Of Commerce Of The United States Of America v. Bonta, et al., which held that California Assembly Bill, also known as AB 51 – which is a statute that attempted to criminalize employers’ use of mandatory arbitration agreements – is preempted by the FAA. In that case, the Ninth Circuit affirmed a preliminary injunction prohibiting California from enforcing AB 51. On January 1, 2024, following a remand in the case, the district court entered a permanent injunction enjoining the State from enforcing the Labor and Government Code sections enacted as a part of AB 51, and the court also awarded the plaintiffs as prevailing parties $822,496. The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests that banded together to challenge the State’s attempt to criminalize the use of mandatory arbitration agreements.
Jerry: Well, that was a welcome ruling from the Ninth Circuit for employers, especially employers that utilize workplace arbitration agreements with class action waivers on a 50-state basis. Our Duane Morris Class Action Review kept track statistically in our database about all arbitration rulings last year, and it showed that 66% of the time, two-thirds of the time, employers were successful in winning motions to compel arbitration, and in the instances where they were not – about one third of the time – it wasn’t so much that there was something defective about the arbitration agreement, it’s that the employer couldn’t demonstrate that the employee had signed off on it, that the onboarding program was such that it couldn’t be proved, they couldn’t find the signature, couldn’t find the electronic trail, that would demonstrate that the employee actually signed off and agreed to the arbitration program. So it seems like the defense is very viable. The Ninth Circuit cleared one of the impediments to doing so. What do you see, as 2024 has now begun, some of the key arbitration decisions in this calendar year?
Eden: Yeah, Jerry, there have been, several significant rulings from the U.S. Supreme Court just in the last month. Last week the court issued its decision in Coinbase v. Suski, which held that where parties have agreed to two contracts – one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts – that a judge (and not an arbitrator) must decide which of the two contracts governs. So, if a company rolls out successive contracts containing inconsistent terms regarding the forum for dispute resolution, a court will decide which of the two contracts applies. Companies with arbitration program should take heed of the Coinbase decision, and make sure that the wording of later issued contracts does not impair previously existing contractual rights to compel disputes to arbitration.
Rebecca: And the U.S. Supreme Court also issued a unanimous decision on May 16 of this year in Forrest v. Spizzirri, holding that when a district court determines that the claims in a lawsuit are arbitrable and a party has requested a stay of litigation, the district court does not have the discretion to dismiss the lawsuit instead. And this this decision resolved a split amongst the federal circuit courts over whether Section 3 of the FAA requires a stay in such circumstances by use of the word “shall” in that provision. The Supreme Court reasoned very clearly that established canons of statutory interpretation, as well as the structure and the purpose of the FAA, compelled the result in that case.
And, very importantly, on April 12, 2024, the U.S. Supreme Court issued a decision in Bissonnette v. LePage Bakeries Park St., LLC. In that case, they held that the application of the transportation worker exemption in the FAA turns upon the work performed by the plaintiff and not the employer’s industry. The Supreme Court made clear that this work-focused test should not bring within the exemption large swaths of workers who, you know, in some manner engage in products that happen to be within the flow of commerce. But instead, the Supreme Court clarified that the worker at issue must play a “direct” and a “necessary” role in the free flow of goods across state borders for the exemption to apply.
Jerry: Certainly seems that the U.S. Supreme Court is a big supporter of arbitration, especially in the class action space, and is trying to clarify things rather than to muddle them. What do you see coming down the track in 2024 in this space?
Eden: Yeah, Jerry, on the PAGA front we’ll likely continue to see plaintiffs disclaiming individual relief in an attempt to avoid arbitration. And in November, Californians will have the opportunity to vote on an initiative that aims to replace PAGA with the new law, the Fair Pay and Employer Accountability Act (“FPEAA”). And the new law, if passed, it will increase penalties for violations. But, on the other hand, it won’t provide for attorneys’ fees recovery, which, as you know, is a driving force behind the flood of PAGA cases that we see. And on the class action front, the future viability of the arbitration defense remains an open question as advocacy groups, government regulators, and political figures push for a ban on class action waivers in arbitration and to carve out categories of claims from arbitration altogether.
Jerry: Well, thank you both very much for this thought leadership and analysis of what we’re seeing. Harkens back to the presidential election from four years ago where actually the viability of workplace arbitration agreements surfaced in the presidential debates. So be interested to see if that occurs in this go around this particular summer. Well, thank you both, and thank you loyal blog readers and listeners for tuning into this week’s edition of the Class Action Weekly Wire.
Eden: Thanks. Jerry. Thanks, listeners.
Rebecca: Thank you.