Workers Prevail in Fight Against Binding Arbitration

On April 29, 2015, the United States District Court for the Central District of California, Hon. Phillip S. Gutierrez, issued an important decision denying defendants' motion to compel arbitration on an individual basis in Maria Ford, et al. v. Gary Yasuda, et al. finding an arbitration agreement unenforceable on grounds of waiver. The opinion provides a well-reasoned decision on conduct inconsistent with arbitration rights and resulting prejudice suffered by the non-moving party. In its decision, the court held that defendants had actively litigated the case in federal court and warned against defendants attempting to compel arbitration for fear of future unfavorable rulings.

The Ford plaintiffs allege that while enrolled at Milan Institute of Cosmetology they were “employees” when they performed services on their paying customers, sold products and services for the for-profit business and engaged in janitorial work including stocking supplies and laundering towels on behalf of defendants Milan Institute of Cosmetology and Gary Yasuda. Because they were not paid wages or provided any employee benefits to which they were due, the Ford plaintiffs brought suit in October 2013 on behalf of themselves and others who enrolled at Milan. 

The court denied defendants’ motion which sought to compel individual arbitration and relief, in the alternative, to extend the scheduling order to allow more time for discovery it had not initiated pending the motion to compel, in its entirety. The court found that defendants abandoned their rights to arbitration by unreasonably delaying filing a motion to compel arbitration seventeen months into the litigation. The court also found that defendants' delay was unjustified where it could not rest on claims on any “precedential, procedural, or other barriers to arbitration.” The opinion exposed defendants' “protracted silence regarding arbitration” as a conscious effort to seek judicial judgment on a threshold legal question then shop for a more receptive forum after an adverse ruling on the issue.

                The court found prejudice in the time defendants took after the filing of the complaint and after it raised arbitration as an affirmative defense before moving to compel. The court also found prejudice to the Ford plaintiffs due to a previous order by the court on defendants’ motion to dismiss which “resolved a crucial issue in [plaintiffs] favor.” Discussed in a previous Bryan Schwartz Law blog post, the court determined that “[b]ased on Martinez, the Court concludes that the California Supreme Court would hold that [Defendants’] students may be properly classified as its employees, if they are within the definition of ‘employment’ established by the IWC.” The court’s analysis highlights that where motions practice requires the litigation of claims on the merits “touch[ing] on the basic issues in the case,” a motion to compel following the motions practice will not be received favorably. As is the case here, plaintiffs would be substantially prejudiced by a need to relitigate matters decided by the district judge. 

The decision not only permits the Ford plaintiffs to proceed in the vindication of their statutory employment rights on behalf of themselves and others similarly situated in federal court, but also enumerates conduct of parties moving to compel arbitration that run afoul of a good faith exercise of arbitration rights. Read the full opinion here.