District Courts in Ninth Circuit Increase Scrutiny of Reversions After Allen v. Bedolla (9th Cir. 2015)

Last year, this blog covered the Ninth Circuit’s opinion in Allen v. Bedolla, vacating a class action settlement for, among other reasons, the parties’ agreement to a reversionary settlement. 787 F.3d 1218 (9th Cir. 2015). Since Bedolla was handed down from on high, district courts throughout the Ninth Circuit have applied the teachings in Bedolla by increasing their scrutiny of class action settlements containing reversions.

In a variation on the common pairing of a claims-made, reversionary settlement, the parties in Banks v. Nissan North America, Inc., a consumer class action related to faulty car brakes, agreed to a reversion of any reduction in attorney’s fees ordered by the court. No. 11-CV-2022-PJH, 2015 WL 7710297, at *13 (N.D. Cal. Nov. 30, 2015). The district court denied plaintiffs’ motion for final approval of class action settlement because, not only did class counsel attempt to receive twelve times the amount paid to class members, class counsel agreed to revert to defendant any “reduction of the attorneys’ fee award.” Id. at *12. Put more plainly, if the court found that class counsel was asking for too much money from the class, then defendant would have received a windfall instead of the class benefiting from the savings. Id. at *13. While there were additional reasons given by the court for its denial of final approval, the presence of a reversion was an important indication that the proposed settlement was not “fair, reasonable, and adequate.” Fed. R. Civ. Proc. 23(e).

Bedolla has also been invoked to strike down a proposed class settlement where any funds not claimed by the class would have been used to pay defendants’ employer taxes instead of the class or cy pres. The court in Sanchez v. Frito-Lay, Inc. rightfully wondered “why it would be fair to the putative class members to satisfy Defendant's employer payroll tax obligation out of the residual settlement amount” instead of directing those funds to the cy pres.  No. 1:14-CV-00797 AWI, 2015 WL 4662636, at *11 (E.D. Cal. Aug. 5, 2015) report and recommendation adopted, No. 1:14-CV-797-AWI-MJS, 2015 WL 5138101 (E.D. Cal. Aug. 26, 2015); see also Millan v. Cascade Water Servs., Inc., 310 F.R.D. 593, 612 (E.D. Cal. 2015) (also citing to Bedolla, denying proposed class settlement, and noting that “[i]f unclaimed funds are to revert to a defendant the parties should explain why those funds should revert to Defendant.”)

Furthermore, the court pointed out that “[t]o the extent that the parties contend that this does not act as a reversion, as the money is not directly returned to Defendant, the net effect is the same” because “there is no indication that class members benefit from that provision of the settlement.” Id. Just like calling a clerical employee a “manager” does not make him so, parties cannot fix the inherent problems with reversions in class settlements by sending the class’s money to the IRS on behalf of the defendant instead of directly returning the money to the defendant. Accordingly, the court kiboshed plaintiffs’ motion for class and conditional certification.

Even where a proposed settlement is eventually approved, a court is given pause by the presence of a reversionary settlement, especially when attorney’s fees are pegged to the nominal common fund instead of the percentage of the fund actually claimed by the class. For example, the court in Tait v. BSH Home Appliances Corporation was “concerned” about the presence of all three factors laid out in Bedolla that indicate “class counsel have allowed pursuit of their own self-interests … to infect negotiations”:

(1) ‘when counsel receive a disproportionate distribution of the settlement;’

(2) ‘when the parties negotiate a “clear sailing” arrangement’ (i.e., an arrangement where defendant will not object to a certain fee request by class counsel); and

(3) when the parties create a reverter that returns unclaimed fees to the defendant.

No. SACV100711DOCANX, 2015 WL 4537463, at *5 (C.D. Cal. July 27, 2015), appeal dismissed (Jan. 13, 2016) (internal citations omitted) (emphasis added). Predictably, the court’s reluctance to grant final approval was due, in part, to the caution in Bedolla “that proportionality should be determined with reference to the actual amount paid to the class” rather than the nominal value of the settlement without taking into account the unclaimed funds that would revert to the defendant. Id. at *6.

Importantly, the “problematic incentives inherent” in reversionary settlements caused the court to discount the views of counsel regarding the quality of the settlement despite acknowledging that “[c]ounsel on both sides of this case are experienced litigators” and that “[c]lass counsel competently investigated and litigated the factual and legal issues raised in this action….” Id. at *8. Thus, a court might take a dim view of class counsel, even exceptionally qualified and diligent class counsel, if they support a reversionary settlement on behalf of the class.

            In sharp contrast to the cases discussed above, the court in Aichele v. City of Los Angeles – a class action brought on behalf of peaceful protestors whose constitutional rights were violated by Los Angeles police officers – granted plaintiffs’ motion for attorney’s fees because “none of the warning signs for a settlement that may be influenced by improper favorable treatment of class counsel exists here.” No. CV1210863DMGFFMX, 2015 WL 5286028, at *6 (C.D. Cal. Sept. 9, 2015). The court supported its decision, in part, by reference to the fact that none of the “class fund revert to Defendants, and [do not] result in a highly disproportionate fee in relation to the actual (as opposed to theoretical) monetary recovery of the class.” Id.; see also In re High-Tech Employee Antitrust Litig., No. 11-CV-02509-LHK, 2015 WL 5158730, at *14 (N.D. Cal. Sept. 2, 2015) (approving ~$40m in attorney’s fees for class counsel in part because “Class Counsel [did not] agree that any portion of the $415 million common fund could revert back to Defendants.”)

            At best, reversionary settlement agreements result in heightened judicial scrutiny of your proposed class settlement and a judicial stink eye that may affect your reputation with the court in the future. At worst, including a reversion will cause a court to strike down what you have worked tirelessly to secure. With district courts vigorously applying Bedolla and its forbearers to class settlements, why risk including a reversion in your hard-fought settlement? 

Business Owners, Beware: Comply, or Pay Big

Bryan Schwartz Law Announces Jury Verdict for Minimum Wage Class Action Plaintiff Wrongfully Terminated from Server Job

She Lost only $3,000 in Wages but Recovers over $375,000 in Damages

Oakland, CA – Today, employment and civil rights attorney Bryan Schwartz announced a jury verdict won in Orange County Superior Court, complex division (Hon. William D. Claster), on behalf of a lead class plaintiff, Amanda Quiles, in her suit alleging unpaid minimum wages. Just a few weeks after filing her class action, the company, Koji’s Japan, Inc., and its owner, Arthur J. Parent, Jr., fired Quiles.

Quiles brought her case against the small sushi restaurant chain in November 2010 as a class action alleging wage violations, which is still pending. Quiles, who was still employed there as a server, was promptly fired. Though the jury found her wage loss damages from being fired were very limited (she worked for minimum wage plus tips, and got a new job within a couple months), she asserted a retaliation claim under the federal Fair Labor Standards Act, 29 USC 215(a)(3).

“We have to protect our clients who are brave enough to step forward and assert class claims,” said Schwartz, celebrating the victory.

Years after filing suit, Quiles and her attorneys learned that the company's owner, Parent, told his subordinate managers to "get rid of her," and "leave a paper trail." 

Parent closed his restaurants in 2012, hoping the suit would vanish, but it did not. The plaintiff and Schwartz’s firm redoubled their efforts to hold Parent personally responsible. He filed personal and corporate bankruptcy the first day of trial in January 2015, but Quiles’s attorneys obtained a stay from the Chapter 7 action as to the restaurants, and his Chapter 13 individual bankruptcy was dismissed. In May 2015, Parent was sanctioned over $50,000 to pay Quiles’s attorneys’ fees and costs for dealing with the bankruptcy, by the United States District Court for the Central District of California, for his frivolous, strategic bankruptcy filing.

After a bench trial over the course of several weeks last year, the court found that Parent was a joint employer under the FLSA because he had "absolute control" over the restaurant chain and had the "ability if not the inclination" to enforce the wage laws. 

Plaintiff offered to settle the case for $20,000 plus her fees and costs in fall 2015, but Parent ignored the offer. In October and December 2015, Quiles and her counsel arrived to try the case, but it was delayed until February 2016. In October 2015, however, the trial court permitted the addition of a punitive damages claim, which ultimately proved very substantial.

The jury’s verdict on March 2 and 3, 2016 was for $3,000 in lost wages, plus $27,500 in compensatory damages, plus $350,000 in punitive damages - with liquidated damages (and attorneys’ fees and costs) still to be determined by the court.

During the trial, Parent was impeached as to his whereabouts when the lawsuit was served. He claimed that he had not seen the lawsuit before Quiles was fired, in early December 2010. Plaintiff’s counsel first attempted service on November 24, 2010 - the day before Thanksgiving. Parent was then shown an email which was forwarded from his account, later that same day, mentioning the lawsuit in the subject line.

Parent then invented a story that he was in Hawaii that day, and might have been "on a cruise," and did not have email access, so it must have been one of his subordinates who sent the email from his account. However, evidence of his postings on his public Facebook page showed that he did go to Hawaii, but on November 25th. The title of his picture posted on Facebook was "At the Airport, LAX, Thanksgiving Day." He was not on a cruise, but rather, sitting in first class on a plane. Another image from Facebook showed him standing on the beach at Waikiki at sunset on Thanksgiving.

In the punitive damages phase of trial, the jury heard about Parent's 103-foot yacht, and plaintiff’s counsel used a long tape measure to show how big the yacht was (more than twice the length of the courtroom) that Parent was riding around on, while Quiles was fighting to get her minimum wages paid.

“I am so grateful to the jury, and to my attorneys, for finally bringing me justice,” said Quiles, who still works as a server. “Maybe someday I will open my own restaurant with this money – but I will pay my workers properly and give back to my community!”

The case is Amanda Quiles, et al. v. Koji’s Japan, Inc., and Arthur J. Parent, Jr., case number 30-2010-00425532-CU-OE-CXC, in the Superior Court for the County of Orange.

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About Bryan Schwartz Law

The firm's principal, Bryan Schwartz, opened the practice in January 2009. Bryan Schwartz Law is dedicated to continuing the struggle for civil rights and equality of employment opportunity and helping Americans from every background to achieve their highest career potential. The firm focuses on individual, class, and collective actions involving discrimination and retaliation, harassment, denied disability accommodations, whistleblower reprisal, wage and hour violations, federal employees' rights, and severance negotiations.

Bryan Schwartz Law is located at 1330 Broadway, Suite 1630, Oakland, CA 94612. The telephone number is (510) 444-9300. For more information, please click on www.BryanSchwartzLaw.com

U.S. Supreme Court Rules against Defendants’ Attempts to Shut Down Employment and Consumer Class Action Suits by Paying Off Named Plaintiffs

On Wednesday the U.S. Supreme Court handed a rare 6-3 victory to consumers and employees seeking to bring class claims in Campbell-Edwald Co. v. Gomez. The Court was tasked with deciding whether a defendant can properly dispose of a class case by offering full relief to the named plaintiffs in an effort to render moot their individual claims and thus get rid of the entire case. Such efforts by defendants to dispose of class cases by paying off the named plaintiffs have become commonplace in consumer and employee class actions.

The case involved a consumer class action under the Telephone Consumer Protection Act (TCPA) against a Navy contractor hired to send recruiting text messages to young people. The TCPA prohibits sending such marketing text messages without the cellular phone user’s prior consent. Jose Gomez, who had not provided consent and nonetheless received the Navy’s recruiting text message, filed suit on behalf of a putative consumer class seeking treble statutory damages for Cambell-Edwald’s knowing and willful violation of the TCPA, as well as an injunction against further unsolicited text messages by Campbell-Edwald.

Before Mr. Gomez’s deadline to file a motion for class certification, Campbell-Edwald filed an offer of judgment to Mr. Gomez under Federal Rule of Civil Procedure 68. Mr. Gomez did not accept that offer. However, Campbell-Edwald contended that by providing Mr. Gomez with an offer of complete relief, his claim became moot. Because his claim was mooted before he moved for class certification, Campbell-Edwald argued, the putative class claims also became moot. The district court rejected those arguments and ruled in favor of Mr. Gomez on that issue. The Ninth Circuit Court of Appeals agreed.

At the Supreme Court, Justice Ginsberg wrote for the majority, joined by Justices Kennedy, Breyer, Sotomayor, and Kagan. (Justice Thomas concurred in the judgment but did not sign Justice Ginsberg’s majority opinion.) Ultimately, Justice Ginsberg resolved the mootness question according to fundamental principles of contract law, stating that “an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.”

In reaching that conclusion, Justice Ginsberg addressed a 2013 decision of the Court, Genesis HealthCare Corp. v. Symczyk, 133 S.Ct. 1523 (2013), a collective action brought by employees under the Fair Labor Standards Act. In that case, the named plaintiff had conceded in the lower courts that her individual claim was rendered moot when she did not accept her employer’s Rule 68 offer to settle her individual claim. Based on that early concession, a five-justice majority held that without a named plaintiff’s live individual case, a class suit could not be maintained. The four dissenting Justices, led by Justice Kagan, argued that the employee’s unaccepted offer of judgment could not properly moot a case.

Justice Ginsberg thus adopted the reasoning of Justice Kagan’s dissent in Genesis HealthCare and secured a majority with the votes of Justices Kennedy and Thomas. The decision was a rare victory for employees and consumers before a Supreme Court that has often been hostile toward class action lawsuits. See previous blog posts here, here, and here. Justice Kennedy’s decision to join the majority in deciding not to dispense with class actions as a means to vindicate vital statutory rights – including job protections--should delight employee and consumer advocates.

The argument advanced by Chief Justice Roberts and the dissenters is a cynical one in its claim that a lawsuit brought on behalf of a class is rendered moot if the defendant offers to pay off the named plaintiffs, even if those named plaintiffs refuse the payment. The Chief’s contention that no live case or controversy exists because a defendant offers to resolve one of potentially thousands of putative class members’ claims cannot be taken at face value.

Practically speaking, what company would not pay a few thousand dollars to the named plaintiffs to escape the possibility of multi-million dollar exposure? Simply put, a seemingly small point of procedural law could have spelled the end of vigorous enforcement for numerous employee and consumer protections enacted by Congress.

Although Justice Ginsberg confined her majority opinion to a relatively narrow set of facts—suggesting the outcome could be different if Mr. Gomez had in fact accepted full payment—employees, consumers, and those who advocate on their behalf can breathe a collective sigh of relief that class actions will live to fight another day.

U.S. District Court Finalizes Approval for Distribution of $36 Million in Landmark Bank of America Wage Settlement

“Your lawyering has just been excellent….I think the results were exceptional; and by that, I mean, there were tremendous risks for the plaintiff….So you have nothing but the Court's praise and compliment. I think you're excellent counsel. You worked very hard. Your briefing was just extraordinary.”

--Hon. David O. Carter, United States District Court, Central District of California (addressing Bryan Schwartz and other counsel, approving their $36 million settlement of wage claims, Jan. 19, 2016)

On January 19, 2016, Bryan Schwartz Law’s principal announced court approval of a $36 million settlement between Landsafe Appraisal Services, Inc., a subsidiary of Bank of America (NYSE: BAC) and 369 current and former employees working as residential real estate staff appraisers. At the hearing where final approval was granted, the federal court in Orange County, Judge David O. Carter, remarked on the exceptional result and the excellent representation provided throughout the lawsuit, which alleged wage violations. Plaintiffs and the other class members should receive average gross payments of nearly $100,000 within the next month.

The lawsuit was first filed in April 2013 in federal court in Orange County. It alleged that Bank of America erroneously applied the "administrative" and "professional" exemptions to residential staff appraisers. Plaintiffs maintained that they typically worked from early in the morning until late at night, churning out reports that are a required part of every mortgage loan. The job required no special academic degree - just a state license. 

In approving the settlement, at the hearing, the court noted favorably that, as a result of the lawsuit, the new owner of Landsafe – CoreLogic – has begun paying all appraisers overtime.

One of the named plaintiffs, Ethel Joann Parks of Manteca, California worked for Bank of America’s Landsafe until 2012. For years, she regularly toiled from 6 a.m. to 10 p.m. completing appraisal reports and, in the process, missing out on daily life and major family events. Rarely did she have time throughout the day to take a break to eat or rest because the artificially short deadlines set by Bank of America forced her to constantly keep working.

Ms. Parks decided to step forward because she felt that bank failed to treat her, and other staff appraisers, “as human beings” with “family and personal needs that should be acknowledged.” She added, “I am vindicated by this lawsuit and the exceptional relief obtained on behalf of the class.  I hope it will force banks and appraisal management companies throughout the country to reconsider pressuring their staff appraisers to work long hours without paying overtime.”

“We are delighted by the court’s recognition of this outstanding result, which not only provides meaningful compensation to hundreds of people, but, we hope, will lead to industry change for many thousands more,” said Bryan Schwartz, founder of Bryan Schwartz Law, lead counsel for the 369 class members, along with the Los Angeles-based firm of Schonbrun Seplow Harris & Hoffman. 

Witnesses supporting the settlement, including an appraiser and industry expert, testified that, as Schwartz hopes, the settlement will send waves and affect change throughout the real estate appraisal industry.

Judge Carter certified a nationwide class action in December 2013 under the federal Fair Labor Standards Act, and certified a class action in California in June 2014 under the California Labor Code. In May 2015, the Court granted plaintiffs summary judgment as to the major defenses Bank of America was asserting, and rejected the bank’s effort to kick the suit out of court.  This resulted in a ruling under which Bank of America would likely owe the workers considerable back wages for overtime and missed meal and rest periods.

The bank then asked the Court for permission to appeal the summary judgment decision immediately, denying any wrongdoing. The case was set to go to trial in August 2015, but the parties reached the $36 million settlement finally approved this week.

For Attorney Schwartz, this is just one of many recent settlements in service of employees who were denied lawful compensation for their efforts.  In 2014, Schwartz and his co-counsel settled another part of the same case against Bank of America (as to review appraisers) for $5.8 million. This makes nearly $42 million for workers in the suit as a whole.  Schwartz has also achieved numerous other multi-million dollar settlements on behalf of thousands of misclassified workers nationwide.

“Employers take grave risks by cutting corners, and not fairly compensating their employees in tune with state and federal law.  My firm and many others, including my co-counsel, are working to end wage theft in the economy…quickly,” added Schwartz.

The case is Terry P. Boyd et al. v. Bank of America Corp. et al., case number 8:13-cv-00561, in the U.S. District Court for the Central District of California.

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Bryan Schwartz Law is dedicated to continuing the struggle for civil rights and equality of employment opportunity and helping Americans from every background to achieve their highest career potential. The firm has recovered tens of millions of dollars in individual, class, and collective actions involving discrimination and retaliation, harassment, denied disability accommodations, whistleblower reprisal, wage and hour violations, Federal employees' rights, and severance negotiations.  

Court Sanctions Defense Attorney for His Sexist Remarks to Opposing Counsel

In a clarion call for civility among attorneys, Magistrate Judge Paul Grewal granted plaintiffs’ motion for sanctions in a civil rights case,[1] and excoriated defendants’ attorney for “repeatedly and unapologetically flout[ing]” the Northern District of California’s Guidelines for Professional Conduct[2], the Federal Rules of Civil Procedure (FRCP), the court’s prior order, and – in this firm’s opinion – offending standards of basic civility most of us learned on the playground, as children.[3] The order is available here.

            Defendants’ attorney produced documents relevant to a deposition in a “physically cracked and unusable disc” on the day of said deposition, delayed correcting this abjectly deficient production for over a month after being repeatedly asked to do so by plaintiffs’ counsel (only to produce documents defendants’ attorney already knew to be in plaintiffs’ possession), made “extremely long speaking objections” in corrective depositions ordered by the court, and many more violations.[4] Tellingly, defendants’ attorney made “no attempt to defend any of this conduct.”[5]

            Escalating his disgraceful misconduct from unprofessionalism to sexism, defendants’ attorney told one of the plaintiffs’ female attorneys, at a deposition she was taking, “[D]on’t raise your voice at me. It’s not becoming of a woman ….”[6] In briefing his opposition to plaintiffs' sanctions request, defendants’ attorney doubled down on his statement with a sorry-not-sorry apology.[7]

As M.J. Grewal explains in his order, defendants’ attorney’s attack “endorsed the stereotype that women are subject to a different standard of behavior than their fellow attorneys.” M.J. Grewal further elaborates that such gender-based vitriol “reflects not only on the attorney’s lack of professionalism, but also tarnishes the image of the entire legal profession and disgraces our system of justice.” The Court found that such statements – in addition to harming the many female attorneys that regularly endure similar treatment – degrades the legitimacy of the legal system itself.

Gendered attacks “reflect and reinforce the male-dominated attitude of our profession.”[8] At a time when the opportunity for female attorneys to advance to leadership roles in law firms remains stymied,[9] our profession should, at the very minimum, not tolerate such Mad-Men-styled sexism from its members.

Fortunately, M.J. Grewal suffers no fools. Because of defendants’ attorney’s egregious misconduct, M.J. Grewal awarded plaintiffs their fees and costs in bringing the motion for sanctions, as well as attorneys’ fees for depositions, including the deposition during which the sexist comment was made. Recognizing that monetary compensation for plaintiffs’ attorneys' fees and legal costs falls short of a just result, M.J. Grewal ordered the “specific and appropriate sanction” of compelling defendants’ attorney to “donate $250 to the Women Lawyers Association of Los Angeles Foundation … and submit a declaration to the court confirming his compliance with this order.”[10]

Courts should emulate Magistrate Judge Paul Grewal, enforcing both women’s equality and basic civility in the legal profession.

---

[1] Claypole v. Cnty. of Monterey, No. 14-cv-02730-BLF (filed June 12, 2014). More information regarding the case can be found here.

[2] The Northern District of California’s Professional Guidelines are available here: http://www.cand.uscourts.gov/professional_conduct_guidelines.

[3] Claypole, No. 14-cv-02730-BLF, slip op. at 1 (N.D. Cal. January 12, 2016).

[4] Id. at 2-3, 5.

[5] Id. at 6.

[6] Id. at 8.

[7] Id. (Defendants’ attorney “offered only a halfhearted politician’s apology ‘if [he] offended’ Plaintiff’s counsel, and he nevertheless tried to justify the comment because it ‘was made in the context of [Plaintiff’s counsel] literally yelling at [his] client and creating a hostile environment during the deposition’ … Other than his own characterization, [Defendants’ attorney] offers no deposition excerpts or other evidence that suggests this.")

[8] Id.

[9] Stephanie A. Scharf & Roberta A. Liebenberg, Am. Bar Ass’n, First Chairs at Trial: More Women Need Seats at the Table 14-15 (2015), available at http://www.americanbar.org/content/dam/aba/marketing/women/first_chairs2015.authcheckdam.pdf. 

[10] Claypole, at 10.

U.S. Supreme Court Enforces Class Action Arbitration Waiver In DIRECTV's Adhesion Contract

The U.S. Supreme Court, on December 14, 2015, ruled, 6 to 3, that DIRECTV customers in California who were allegedly illegally charged hefty “early termination fees” of up to around $500 can neither file their individual claim with a court nor join together to sue the company in court. The Supreme Court ordered that each consumer must have their respective complaint adjudicated through a private arbitration system established by DIRECTV (now owned by AT&T). See DirecTV, Inc. v. Imburgia, et al, available at: http://www.supremecourt.gov/opinions/15pdf/14-462_2co3.pdf . 

         The majority refused to give the customer the benefit of the doubt when DIRECTV itself drafted and provided the ambiguous contractual languages in its 2007 version of the form service contract in dispute. Section 9 of this 2007 form agreement provides that (1) any claims raised by DIRECTV or consumers will be resolved only by binding arbitration; (2) no class-based arbitration is permitted; (3) the entire arbitration provision (i.e., arbitration only and no class-based claims) is unenforceable if “the law of your state” makes the class arbitration waiver unenforceable. Section 10 states that Section 9 shall be governed by the Federal Arbitration Act (FAA). The majority deferred to California Court of Appeal’s interpretation and concluded “the law of your state” refers to “the law of California.” The only issue in this case, thus, was whether California state law made the class arbitration waiver unenforceable so as to make the entire arbitration provision unenforceable.

The majority held that current California state law could not make DIRECTV’s clause of class arbitration waiver unenforceable even though in 2007—when DIRECTV drafted the form agreement—California’s Supreme Court, in Discover Bank v. Superior Court, 36 Cal. 4th 148, 162-163 (2005), had held class arbitration waiver clauses under such circumstances unconscionable and unenforceable. In other words, when DIRECTV imposed this 2009 service agreement, both parties (DIRECTV and California customers who read and understood the agreement) would have had to assume if they knew California law that the class arbitration waiver would be unenforceable in California, which would have made the entire arbitration provision unenforceable under the terms of the agreement. The majority acknowledged that such assumption was likely to exist.

 The majority, however, held “the law of your state” should be presumed to be the current “valid state law.” Given the Supreme Court, in 2011, held that Discover Bank was pre-empted by the FAA (in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011)), Discover Bank is not “valid state law.” The majority held that California courts discriminated against arbitration—violating the FAA’s policy that favors arbitration. Therefore, the majority concluded California Court of Appeal’s decision interpreting DIRECTV’s 2009 form service agreement was pre-empted by the FAA and individual arbitration is required.

Justices Ginsburg and Sotomayor dissented, as did Justice Thomas. Justice Thomas (surprisingly) opined that the FAA does not require state courts to order arbitration, stating that it does not apply to proceedings in state courts.

Justice Ginsburg articulated at least four errors in the majority’s opinion. 

First, the majority misread the FAA (enacted in 1925 to resolve disputes between merchants with equal bargaining powers), depriving consumers of effective relief against powerful economic entities, which have created their contracts with consumers and employees containing no-class arbitration clauses. Consumers and most employees, unlike merchants with equal bargaining powers, lack the ability to change the terms of consumer adhesion contracts or employment agreements so that their effective access to justice would be safeguarded.

Second, the majority unreasonably expanded the FAA’s pre-emption scope. The FAA preempts state laws only to the extent that state laws conflict with “the contracting parties’ intent.” For example, the contracting parties in 2009 expected Discover Bank to be valid – their 2009 intent should not be gauged in light of the 2011 Concepcion decision.

Third, Section 1751 of California’s Consumer Legal Remedies Act (CLRA), which the Plaintiffs relied upon to prosecute DIRECTV’s alleged violations, also renders class action waivers invalid, and Section 1751 remains “valid California state law.” Therefore, the majority erred in ignoring it.

Fourth, the majority’s decision contravenes international standards making arbitration clauses in adhesion contracts unenforceable. For example, Justice Ginsberg points out that the European Union bars enforcement of one-party-dictated mandatory consumer arbitration agreements because consumers cannot agree to arbitration that would effectively deprive them of the ability to enforce their rights.

Bryan Schwartz Law has had extensive experience fighting for employees who have no other choices but to accept a mandatory arbitration clause to get a job. We agree with the Ginsburg dissent that “arbitration is a matter of consent, not coercion” and believe the majority’s decision empowers the powerful economic enterprises but deprives the powerless, like workers and consumers, of their ability to protect their rights effectively.

Contact Bryan SchwartzLaw to learn how an arbitration agreement may affect your rights.

Bryan Schwartz Law's Principal Publishes Photography Book Highlighting Jewish Diversity

After 16 1/2 years of dedication to the project, Bryan Schwartz Law's principal has published Scattered Among the Nations, a book of photographs and stories of the world's most isolated Jewish communities. The coffee table book highlights sixteen diverse Jewish communities in Africa, Asia, Latin America, the Former Soviet Union, and beyond.

"My work every day as a civil rights lawyer is driven by the same passion for diversity, and my fascination with the workings of our multicultural planet, that have inspired this project," said Schwartz. "I am humbled and delighted to see it come to fruition, with such a beautiful product, after all of these years."

The publisher's blog post is at http://www.weldonowen.com/blog/3-worlds-most-isolated-jewish-communities.

The first review of the book is here.