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This case was before the Eleventh Circuit on the defendant-employer’s appeal of the district court’s denial of its motion to compel arbitration. Specifically, the district court held that the parties’ agreement to arbitrate was unenforceable because the arbitration clause required each party to bear its own attorneys’ fees and costs. The Eleventh Circuit affirmed in part and vacated and remanded in part, so that the district court could decide whether the offending provision could be severed, which the lower court had already held it could not.
Describing the relevant arbitration clauses at issue, the court explained:
Those arbitration clauses provide:Any dispute arising out of this agreement shall be resolved by mediation or arbitration, each party agrees, the parties will equally divide cost of mediation. Each party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration. The arbitrat[or] may conduct the hearing in absence of either party. After notified of such hearing. [sic](Emphasis added).
In his R&R, the magistrate judge determined the language of the arbitration provisions plainly prohibited Appellees from recovering their fees and costs, and thus the fees and costs clauses were unenforceable as they contravened the FLSA. The magistrate judge went on to note the arbitration provisions did not contain severability clauses, and that in the absence of a severability clause, the objectionable language could not be severed. Accordingly, the magistrate judge determined the arbitration provisions were unenforceable in their entirety. PIP filed objections to the R&R, arguing the fees and costs clauses merely required the parties to “pay their own way” while the arbitration is proceeding, and that nothing in the ECAs prohibited the arbitrator from shifting the fee if and when the Appellees were determined to be prevailing parties. And, even if the fees and costs clauses were unenforceable, the magistrate judge erred in concluding the “objectionable language could not be severed solely because the arbitration clauses do not contain a severability provision.” PIP asserted that Eleventh Circuit case law does not hold that any arbitration agreement that contains an unenforceable remedial restriction is completely null and void in the absence of a severability clause. Instead, the court is required to determine whether the unenforceable clauses are severable, which is decided as a matter of state law, here the law of Florida. PIP claimed Florida law allowed an unenforceable clause to be severed as long as the unenforceable clause does not go to the essence of the agreement. Thus, PIP asserted, even if the court were to sever the offending clause, there would still be a valid agreement to resolve employment-related disputes through arbitration.The district court adopted the magistrate judge’s R&R and denied PIP’s motion to compel arbitration after concluding the arbitration provisions in the relevant contracts were unenforceable because they denied the Appellees a substantive right under the FLSA—the right to recover fees and costs pursuant to 29 U.S.C. § 216(b). Furthermore, the court concluded that because the arbitration provisions did not provide for severability, the arbitration provisions were unenforceable in their entirety.
On appeal, the Eleventh Circuit affirmed the district court’s holding that the fee/cost splitting provision violated the FLSA. However, it remanded for further decision on whether the offending provision could be severed notwithstanding the absence of a severability clause.
Holding the fee/costs splitting provision to be unenforceable, the court explained:
Appellees contend the arbitration provisions improperly deny them their statutory right to recover fees and costs under the FLSA.The district court did not err in concluding that the statement “[e]ach party to any arbitration will pay its own fees and expense, including attorney fees and will share other fees of arbitration,” does not leave any discretion with the arbitrator to award fees and costs. (Emphasis added). We have held the terms of an arbitration clause regarding remedies must be “fully consistent with the purposes underlying any statutory claims subject to arbitration.” Paladino v. Avnet Comput. Techs., Inc., 134 F.3d 1054, 1059 (11th Cir. 1998). Thus, the clause providing that each party will pay its own fees and costs is unenforceable, as the FLSA allows fees and costs as part of a plaintiff’s award. Id. at 1062 (“When an arbitration clause has provisions that defeat the remedial purpose of the statute, … the arbitration clause is not enforceable.”); 29 U.S.C. § 216(b)… Appellees have met their burden of establishing that enforcement of the fees and costs clauses in the arbitration provisions would preclude them from effectively vindicating their federal statutory rights in the arbitral forum. See id. at 1259. Thus, the district court did not err in concluding the fees and costs clauses are unenforceable.
However, the Court rejected the portion of the district court’s opinion which had held–consistent with Florida law–that the absence of a severability clause rendered the arbitration cause unenforceable in its entirety. As such, it reversed and remanded this issue for further consideration, reasoning:
The district court then reasoned that if the arbitration provisions contained a severability clause, the offending clauses could potentially be severed. Because the ECAs did not contain a severability provision, the court stated the objectionable language could not be severed and determined the arbitration clauses were unenforceable in their entirety.However, we have rejected the proposition that an “arbitration agreement that contains an unenforceable remedial restriction is completely null and void unless it also contains a severability clause.” Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1331 (11th Cir. 2005). Instead, if a provision is “not enforceable, then the court must determine whether the unenforceable provisions are severable. Severability is decided as a matter of state law.” Id.Our law does not support that an arbitration provision is unenforceable in its entirety if it contains an offending clause and lacks a severability provision. Id. The district court did not go on to the next step to address whether the unenforceable clauses were severable as a matter of Florida law, despite PIP arguing this issue in its objections to the R&R. Thus, we remand to the district court to decide in the first instance the issue of whether the offending clauses are severable under Florida law.
Thus, the Eleventh Circuit affirmed the district court’s conclusion the fees and costs clauses of the arbitration provisions were unenforceable, but reversed the district court’s conclusion the arbitration provisions are unenforceable in their entirety solely because they lack a severability provision, and remanded for the district court to determine whether the fees and costs clauses are severable as a matter of Florida law.
Click Hudson v. P.I.P., Inc. to read the entire Opinion.
11th Cir.: District Court Correctly Refused to Enforce Arbitration Agreement Obtained From Putative Class Members With Motion for Conditional Cert Pending
Employers seem to getting increasingly aggressive with class waivers, arbitration agreements in the wake of recent high court rulings which are seemingly boundless. In the wake of these recent decisions, some employers—who previously did not include waivers or arbitration agreements in their employment agreements—are seeking to play catch up. Troublingly, we seem to be seeing more and more situations where employers, facing the prospect of class/collective actions based on their often willful violations of wage and hour laws are attempting to force arbitration agreements on their employees in an effort to blunt efforts by their employees to recover their rightful wages. However, most courts faced with such situations have invalidated these improperly obtained arbitration clauses, recognizing that employers are in a position to exert undue pressure on employees fearful for their jobs, and that such arbitration “agreements” are frequently anything but an agreement between two parties consenting to arbitration of their own will.
In a recent decision, the Eleventh Circuit was called upon to review one such decision by a district court (first discussed here) that held such a forced arbitration clause to be invalid, and affirmed the district court’s order denying the defendant’s motion to enforce arbitration under the agreements at issue.
Laying out the salient facts of the case, the court explained:
To support its order denying Citi Trends’s motion to compel arbitration, the district court made the following findings of fact:
Citi Trends devised and implemented a new alternative dispute resolution (“ADR”) policy in the late spring and early summer of 2012—after it was served with the complaint in this action on February 27, 2012, and after the district court set a scheduling conference for May 31, 2012. Weeks after the district court’s May 31, 2012 scheduling order, Citi Trends began to roll out its new ADR policy. The ADR policy included a mandatory agreement to arbitrate all disputes individually rather than collectively.
By June 30, 2012, Citi Trends sent its human resource representatives to meet with store managers to roll out the new ADR policy—but only to putative collective action members (i.e., store managers). Throughout the summer, Citi Trends’s human resource representatives met individually with all store managers across the country. Citi Trends had two employees in each ADR meeting: a human resources representative and a “witness.”
The human resources representative who met with the store managers advised Citi Trends in its employment decisions. Thus, the store managers reasonably believed the human resources representative had authority to make or influence employment decisions, including hiring and firing decisions.
Store managers were ordered to attend the ADR meetings by their supervisors. Citi Trends did not inform the store managers of the true purpose of the mandatory meetings. Instead of telling the store managers that the meetings concerned the company’s new ADR policy, Citi Trends told the store managers that the mandatory meetings concerned the issuance of a new employee handbook.
Typically, Citi Trends rolled out its new employee handbook in a group setting. The handbook was generally provided in printed form (i.e., not as a photocopy), and the employees were required to sign for the handbook. Here, however, Citi Trends did not follow any of its general procedures for rolling out the employee handbook. Instead, Citi Trends (1) held two-on-one private meetings with each store manager in a small, back room in Citi Trends retail stores—the same places where the store interrogated or investigated its employees, (2) discussed only the ADR policy and the fill-in-the-blank declarations related to the store managers’ job duties, (3) provided photocopied versions of the employee handbooks as the store managers left the meetings, and (4) did not require the store managers to sign for the photocopied employee handbook.FN6 The district court found that this rushed and atypical rollout of the employee handbook demonstrated that Citi Trends’s handbook rollout was “pretext for presenting the [arbitration] Agreement to the [store managers] to derail their participation in this lawsuit.”
When a store manager arrived at the back-room meetings, a human resources representative greeted the store manager. A second individual was also at each meeting; however, this person was not introduced to, or known by, the store managers.
At the meetings, Citi Trends’s human resources representative gave the store managers these documents: the arbitration agreement, a fill-in-the-blank declaration, and the store manager disclosure. The store managers were asked to sign each of these documents at the meeting.
Citi Trends informed the store managers that the arbitration agreement was a condition of continued employment. The store managers understood that they would be fired if they did not assent to the arbitration agreement or the new ADR policy. Thus, the store managers lacked meaningful choice in whether to sign the arbitration agreements or other documents. The district court found the setting of the back-room meetings to be a “highly coercive” and “interrogation-like.”
Opt-in plaintiffs testified that they signed the documents but felt intimidated by the human resources representative. They also felt pressured to sign the arbitration agreements to avoid losing their jobs. Even when specifically requested, Citi Trends did not give the store managers copies of the documents that the store managers signed.
The district court found that Citi Trends did not conceive or begin to institute its ADR policy until after the district court held a scheduling conference to determine when and how Billingsley must move for conditional certification. Citi Trends then rolled out its ADR policy in a “blitzkrieg fashion” and only required potential members of this collective action to agree to the ADR policy. The district court found that Citi Trend’s “ADR roll-out was a hurried reaction specifically targeted at curtailing this litigation.”
The district court found that the “purpose and effect” of the arbitration agreement was “to protect Citi Trends in this lawsuit.” The district court also found that the timing of the arbitration agreement’s rollout “was calculated to reduce or eliminate the number of collective action opt-in Plaintiffs in this case” and the rollout was “replete with deceit” and “designed to be[ ] intimidating and coercive.”
After a discussion of the FLSA, its remedial purpose and the broad discretion afforded to courts in managing collective actions, the Eleventh Circuit held that that the district court properly exercised its broad discretion in denying the defendant’s motion to compel arbitration, because such a denial was in line with the court’s responsibilities to manage communications between the parties and putative class members. Specifically, the court reasoned:
Given the “broad authority” that the district court has to manage parties and counsel in an FLSA collective action, the district court did not abuse its discretion in determining that Citi Trends’s conduct in the summer of 2012 undermined the court’s authority to manage the collective action. Nor did the district abuse its discretion in determining that—to correct the effect of Citi Trends’s misconduct—it would allow putative collective action members to join the lawsuit notwithstanding their coerced signing of the arbitration agreements.
Whatever right Citi Trends may have had to ask its employees to agree to arbitrate, the district court found that its effort in the summer of 2012 was confusing, misleading, coercive, and clearly designed to thwart unfairly the right of its store managers to make an informed choice as to whether to participate in this FLSA collective action. Since the arbitration agreements by their terms will directly affect this lawsuit, the district court had authority to prevent abuse and to enter appropriate orders governing the conduct of counsel and the parties. See Hoffmann–La Roche, 493 U.S. at 171, 110 S.Ct. at 486–87; see also Kleiner, 751 F.2d at 1203 (class action).
The district court simply did what other district courts routinely do: exercise discretion to correct the effects of pre-certification communications with potential FLSA collective action members after misleading, coercive, or improper communications are made. See, e.g., Balasanyan v. Nordstrom, Inc., No. 11–CV2609–JM–WMC, 2012 WL 760566, at * 1–2, 4 (S.D.Cal. Mar.8, 2012) (refusing to enforce individual arbitration agreement in an FLSA action because the defendant’s imposition of the agreement was an improper class communication); Williams v. Securitas Sec. Servs. USA, Inc., No. 10–7181, 2011 U.S. Dist. LEXIS 75502, at *8–12 (E.D.Pa. July 13, 2011) (invalidating arbitration agreement imposed on the defendant’s employees during pre-certification stage of FLSA litigation and ordering corrective measures because the arbitration agreement was a “confusing and unfair communication” with the potential opt-in plaintiffs); Ojeda–Sanchez v. Bland Farms, 600 F.Supp.2d 1373, 1379–81 (S.D.Ga.2009) (granting a limited protective order in FLSA collective action where the defendants engaged in unsupervised, unsolicited, in-person interviews of the plaintiffs in an environment that encouraged speedy and uninformed decision-making); Longcrier v. HL–A Co., 595 F.Supp.2d 1218, 1229–30 (S.D.Ala.2008) (striking declarations obtained through the defendants’ abusive and misleading communications with prospective opt-in plaintiffs); Jones v. Casey’s Gen. Stores, 517 F.Supp.2d 1080, 1086, 1089 (S.D.Iowa 2007) (limiting the plaintiffs’ counsel from affirmatively soliciting potential opt-in plaintiffs to join the FLSA action and requiring counsel to modify their website to provide “only a factual, accurate, and balanced outline of the proceedings”); Maddox v. Knowledge Learning Corp., 499 F.Supp.2d 1338, 1342–44 (N.D.Ga.2007) (observing that district courts in § 216(b) actions rely on broad case management discretion by limiting misleading, pre-certification communications and exercising that discretion in the case before the court by ordering the plaintiffs to correct false, unbalanced, and misleading statements on their website); Belt v. Emcare, Inc., 299 F.Supp.2d 664, 667–70 (E.D.Tex.2003) (sanctioning the employer and enjoining the employer from communicating ex parte with potential class action members because the employer intentionally attempted to subvert the district court’s role in the FLSA collective action by unilaterally sending a misleading and coercive letter to potential plaintiffs that encouraged those persons not to join).
District courts’ corrective actions have included refusal to enforce arbitration agreements instituted through improper means and where the timing of the execution of those agreements was similar to the post-filing, pre-certification timing in this case. See, e.g., Balasanyan, 2012 WL 760566, at * 1–2; Williams, 2011 U.S. Dist. LEXIS 75502, at *8–12; see also In re Currency Conversion Fee Antitrust Litig., 361 F.Supp.2d at 252–54 (imposing similar corrective action in Rule 23 class action).
The district court did not abuse its discretion in correcting the effects of Citi Trends’s improper behavior in this case. The district court held an initial hearing, after which it denied Citi Trends’s motion to compel arbitration. The court then reconsidered its order, held an additional two-day evidentiary hearing, made specific and detailed findings of fact that were supported by the record, and took minimal action to correct the effects of Citi Trends’s conduct.
The district court limited its order temporally and substantively. The district court limited its order to those agreements signed under the coercive conditions used by Citi Trends in the summer of 2012. And, the district court limited its order to this particular FLSA action. The court specifically said that it was not ruling on the enforceability of the arbitration agreements as they relate to other cases or controversies. The district did not restrict Citi Trends from entering into new arbitration agreements with the store managers; nor did the court prevent store managers from electing to comply with the terms of the arbitration agreements that they signed in the summer of 2012.
The district court’s limited remedial action is not an abuse of its considerable discretion to manage this collective action. Accord Kleiner, 751 F.2d at 1203 (holding that a district court’s power to manage a class action included the power to prohibit a defendant from making “unsupervised, unilateral communications with the plaintiff class”). That is especially true given the opt-in nature of FLSA collective actions. Because FLSA plaintiffs must opt-in, unsupervised, unilateral communications with those potential plaintiffs can sabotage the goal of the FLSA’s informed consent requirement by planting the slightest seed of doubt or worry through the one-sided, unrebutted presentation of “facts.” Because the damage from misstatements could well be irreparable, the district court must be able to exercise its discretion to attempt to correct the effects of such actions. See Hoffmann–La Roche, 493 U.S. at 170, 110 S.Ct. at 486 (noting that court intervention in the collective action notice process may be necessary).
Because we affirm the district court’s decision to deny enforceability of the arbitration agreements in this case, we necessarily must affirm the district court’s order denying Citi Trends’s motion to compel arbitration.
Click Billingsley v. Citi Trends, Inc. to read the entire Opinion.
S.D.N.Y.: Existence of Arbitration Agreements for Some (Not All) Employees in Putative Class, Irrelevant re “Similarly Situated” Inquiry at Stage I
This case was before the court on plaintiff’s motion for conditional certification. The case concerned allegations of impermissible tip credit, inadequate notice of same (under 203(m)), and other allegations of unpaid minimum wages. As further discussed here, defendants largely focused their attack on their twin contentions that the class proposed by plaintiff was not similarly situated to him and/or was too broad, because it contained English speakers (the plaintiff did not speak English) and employees and former employees who had signed arbitration agreements (the plaintiff did not). The court rejected both of these contentions, and reasoned that neither of these factors were appropriately considered at Stage I, the conditional certification stage.
Rejecting the defendant’s arguments in this regard, and holding that such issues were more properly reserved for Stage II or decertification analysis, the court reasoned:
The Court disagrees with defendants’ arguments. Case law imposes only a very limited burden on plaintiffs for purposes of proceeding as a conditional collective action. “[C]ourts have conditionally certified collective actions under the FLSA where plaintiffs, based on their firsthand observations, identify an approximate class of similarly situated individuals.” Hernandez v. Immortal Rise, Inc ., 2012 WL 4369746, at *4 (E.D.N.Y. Sept. 24, 2012). Here, Romero has done just that, stating in his declaration that he “personally observed … Defendants’ policy to pay below the statutory minimum wage rate to all tipped employees,” that he and other tipped employees were compensated “all at rates below the minimum wage,” that he has never seen a tipped employee “receive proper notice explaining what a tip credit is,” that he and other tipped employees had to spend more than 20% of their daily time in non-tipped related activities, that he observed defendants engaging in time-shaving, that he observed when employees were sent home without call-in pay if the restaurant was not busy, and that he “personally observed that all non-exempt employees received the same form of wage and hour notice.” Romero Decl. ¶¶ 2–9. The affidavit of a plaintiff attesting to the existence of similarly situated plaintiffs is sufficient for the purposes of a motion to approve a collective action. See Cheng Chung Liang v. J.C. Broadway Restaurant, Inc., 2013 WL 2284882, at *2–3 (S.D.N.Y. May 23, 2013) (“For the purposes of this motion, … plaintiffs’ evidence—in the form of [one employee’s] affidavit—is sufficient to establish that … there may be class members with whom he is similarly situated.”). Thus, Romero has made a sufficient showing that he and potential plaintiffs “were victims of a common policy or plan that violated the law.” Hoffman, 982 F.Supp. at 261.
Defendants’ principal argument is that because other employees signed arbitration agreements, Romero is not similarly situated to these other employees. Def. Mem. at 6–14. Defendants assert that the claims here are “properly pursued solely in arbitration, on an individual basis, by all of Ruhlmann’s employees who signed such an agreement” and therefore that “Ruhlmann’s employees are dissimilar from Plaintiff Romero and must pursue any claims they may have in an arbitral forum rather than federal court.” Def. Mem. at 8–9. Romero challenges both the enforceability and the validity of these arbitration agreements. He argues that the agreements are not enforceable because they violate the fee-shifting provision of the FLSA. Reply at 6–7. Romero also argues that defendants caused several of these agreements to be signed by coercion, that it is highly likely that several employees did not actually sign arbitration agreements, and that the validity of the signatures on several agreements are questionable. Reply at 7–9; Pl. May 31 Letter at 2. Additionally, he asserts that the agreements are unenforceable because they limit the statute of limitations on employees’ claims to six months and because they were not provided to employees in their native language. Pl. Aug. 20 Letter at 2–3.
As already noted, the question on a motion to proceed as a collective action is whether the proposed plaintiffs are similarly situated “with respect to their allegations that the law has been violated.” Young, 229 F.R.D. at 54; accord Meyers, 624 F.3d at 555 (in conditional collective action approval, question is whether the proposed plaintiffs are similarly situated to the named plaintiffs “with respect to whether a FLSA violation has occurred”). The arbitration agreements do not create any differences between Romero and the proposed plaintiffs with respect to Romero’s claims that defendants have violated the FLSA. That is, the validity vel non of the agreements is unrelated to any claims of a violation of the FLSA. Under this reasoning, the existence of differences between potential plaintiffs as to the arbitrability of their claims should not act as a bar to the collective action analysis. Indeed, courts have consistently held that the existence of arbitration agreements is “irrelevant” to collective action approval “because it raises a merits-based determination.” D’Antuono v. C & G of Groton, Inc., 2011 WL 5878045, at *4 (D.Conn. Nov. 23, 2011) (citing cases); accord Hernandez, 2012 WL 4369746, at *5;Salomon v. Adderly Indus., Inc., 847 F.Supp.2d 561, 565 (S.D.N.Y.2012) (“The relevant issue here, however, is not whether Plaintiffs and [potential opt-in plaintiffs] were identical in all respects, but rather whether they were subjected to a common policy to deprive them of overtime pay ….”) (alteration in original) (internal citation and quotation marks omitted).
In support of its argument that the existence of arbitration agreements merits denial of collective action approval, defendants make arguments about the eventual enforceability of the arbitration agreements and rely on cases in which courts granted motions to dismiss and compel arbitration because of such agreements. See Def. Mem. at 6–7. Critically, defendants do not even address the cases holding that consideration of the validity of arbitration agreements is inappropriate in the context of a motion to approval an FLSA collective action. The situation here is thus akin to the situation in Raniere v. Citigroup Inc., 827 F.Supp.2d 294 (S.D .N.Y.2011), rev’d on other grounds, 2013 WL 4046278 (2d Cir.2013), in which the court remarked:
Defendants have failed to cite a single authority finding that due to the possibility that members of the collective [action] might be compelled to bring their claims in an arbitral forum, certification is not appropriate. Such arguments are best suited to the second certification stage, where, on a fuller record, the court will examine whether the plaintiffs and opt-ins are in fact similarly situated.
Id. at 324.
Defendants’ strongest argument is that “[i]t would be a waste of judicial and party resource to force defendants” to send notice to individuals ultimately bound to arbitrate claims. Def. June 4 Letter at 3. But the notice requirement is not unduly burdensome in this case and the defendants’ proposal essentially amounts to an invitation for the Court to adjudicate the validity of the arbitration agreements. But, as already noted, case law makes clear that this sort of merits-based determination should not take place at the first stage of the conditional collective action approval process. Plaintiff has raised at least colorable arguments to support the invalidity or unenforceability of the arbitration agreements, some of which are fact-intensive. Case law holds, however, that issues of fact surrounding arbitration agreements are properly resolved at the second stage of the two-step inquiry. D’Antuono, 2011 WL 5878045, at *5; accord Salomon, 847 F.Supp.2d at 565 (“[A] fact-intensive inquiry is inappropriate at the notice stage, as Plaintiffs are seeking only conditional certification.”) (citing cases); Ali v. Sugarland Petroleum, 2009 WL 5173508, at *4 (S.D.Tex. Dec. 22, 2009) (“The Court will make the determination [of whether to exclude those who signed arbitration agreement from the class] at the conclusion of discovery, when it may properly analyze the validity of the arbitration agreement.”). Defendants not only fail to distinguish these cases, they do not even proffer any argument as to why the reasoning of these cases is wrong.
Defendants have submitted evidence contradicting Romero’s claim that he is similarly situated to other employees with respect to other aspects of his claims, such as his understanding of the tip credit. See Collin Decl. ¶ 9. However, “the two-stage certification process exists to help develop the factual record, not put an end to an action on an incomplete one.” Griffith v. Fordham Fin. Mgmt., Inc., 2013 WL 2247791, at *3 (S.D.N.Y. May 22, 2013) (granting collective action approval where defendant had put forth “contravening evidence”) (emphasis omitted) (internal citations and quotation marks omitted). For these reasons, Romero’s motion for conditional approval of a collective action is granted.
Click Romero v La Revise Associates, L.L.C. to read the court’s entire Opinion & Order.
N.D.Ala.: Arbitration Agreements Obtained By Defendant in Required Meetings After Putative Collective Commenced Unenforceable
Billingsley v. Citi Trends, Inc.
This case was before the court following the court’s order prohibiting enforcement of arbitration agreements that the defendant obtained from opt-ins (prior to the time they opted in to the case). The court previously had ruled that such arbitration agreements were unenforceable, because of the manner in which they were obtained from current employees, following an evidentiary hearing regarding same. This case is particularly important because it addresses the common situation in which a defendant-employer, at least arguably, crosses the line from attempting to mount a defense to a potential collective/class action, and begins to improperly exercise its unequal power over its current employees/putative class members. Denying the defendant’s motion for reconsideration, the court expanded on the reasoning of its prior order.
As the court explained:
This Fair Labor Standards Act case presents the court with a dilemma: enforce arbitration agreements against Defendant Citi Trends Store Managers, who are potential opt-in Plaintiffs in this collective action that were obtained during the conditional certification stage of this case and gut the collective action mechanism Congress provided for the protection of employees or refuse to enforce the arbitration agreements and run afoul of the federal policy favoring their enforcement. Because of the particular events surrounding the roll-out of the arbitration agreement in this case, as specifically discussed below, the court finds it cannot approve employer conduct like that involved in this case specifically targeting only potential class members during a critical juncture in this case with the definite goal of undercutting the Congressional intent behind the collective action process. The court will DENY the Defendant’s motion to compel arbitration and preserve the viability of the collective action mechanism.
Summarizing the parties’ respective contentions, the court explained:
Defendant Citi Trends, Inc. argues that this court’s ruling at the January 2013 hearing that it could not seek to compel arbitration against those opt-in Plaintiffs who signed mandatory arbitration agreements was an error of law. The Plaintiffs argue that the court’s ruling was appropriate and necessary to correct Citi Trends’s wrongful action—intimidating its employees into waiving their rights to join this lawsuit by signing mandatory arbitration agreements. On April 19, 2013, the court granted the motion to reconsider its ruling and set an evidentiary hearing to hear evidence surrounding presentment of the arbitration agreements to determine if any coercion, duress, or intimidation occurred.
While the court had previously denied the plaintiff’s motion for protective order and/or to strike declarations obtained from current employees, that was not the end of its inquiry as to whether the arbitration agreements should be enforced. Rather, the court held an evidentiary hearing because the
high standard had not been met on the parties’ submission alone, and thus, the court decided it needed to hold a hearing to determine if any coercion, duress, intimidation, or other abusive conduct occurred at the time SMs were required to sign the Agreement. The question of enforcement of or invalidation of the Agreement invokes a different standard than did the motion to strike or to enter a protective order, which was the requested relief before the court previously.
The court summarized the evidence received at the hearing as follows:
At the evidentiary hearing on May 14 and 15, 2013, the court heard testimony from opt-in Plaintiffs Roilisa Prevo and Katina Alfred, former Citi Trends SMs; Ivy Council, Executive Vice President of Human Resources for Citi Trends; Rashad Luckett, Human Resources Coordinator for Citi Trends; Vanessa Davis, Director of Human Resources for Citi Trends; and LaKesha Wilkins, an “independent third party witness” hired by Citi Trends to sit in SM meetings with Ms. Davis. The court will briefly summarize that testimony here but will also reference it as needed in the discussion below.
Citi Trends devised and implemented its new ADR policy in the late spring and early summer of 2012—shortly after it was served with the complaint on February 27, 2012 (doc. 6), and after the court on May 16, 2012, set a scheduling conference for May 31, 2012. (Doc. 17). On May 31, 2012, this court issued a Scheduling Order requiring the Plaintiffs to file their motion for conditional certification of the class on or before July 31, 2012 with briefing to be completed by September 10, 2012. (Doc. 18). Just a couple weeks after the Order, in mid-June, Citi Trends began the process of rolling out its new Alternative Dispute Resolution (“ADR”) plan, including the mandatory Agreement. Ms. Davis testified that as of mid-June she had virtually completed the new employee handbook she was working on, which did not include an ADR policy; she learned for the first time in mid-June that the updated handbook would include the new ADR policy. Citi Trends, under the direction of Ms. Council, sent Ms. Davis, Mr. Luckett, and other HR representatives to have two-on-one private meetings with SMs across the country as early as June 30, 2012 to roll out the new ADR policy. The HR representatives met with all SMs individually throughout the summer.
District Managers (“DMs”) told the SMs that they must attend the meetings that concerned the issuance of a new employee handbook. DMs were only asked to sign the Agreement if the HR Representatives happened to see them at the SM meetings, but Citi Trends distributed the Agreement to DMs, other corporate employees, and store associates at a later date.
When the SMs arrived at the meetings, they were greeted by an HR Representative and another individual, who Ms. Prevo claimed was never introduced to her and whom Ms. Alfred identified as another Citi Trends corporate employee. The HR Representatives gave the SMs four documents: the SM Disclosure, the Agreement, the SM Declaration, and a photocopied version of a new employee handbook. The two-on-one private meetings took place in small, back rooms in Citi Trends retail stores, the same places where interrogations or investigations of employees occurred. The HR Representatives who met with the SMs played an advisory role in the employment decisions of Citi Trends employees, and both Ms. Prevo and Ms. Alfred testified that they believed the HR representatives conducting the meetings had authority to make employment decisions about them, such as hiring and firing.
Ms. Alfred and Ms. Prevo testified that they signed the documents but came away from those meetings having felt intimidated by the HR Representatives and pressured to sign the Agreement or lose their jobs. The SMs were not given copies of the documents they signed at the meeting or at anytime afterward, even if they specifically requested copies.
After finding the agreements at issue to be both procedurally and substantively unconscionable, the court weighed the related public policy concerns as well:
The biggest public policy concern that the court has to consider about actions of Citi Trends, however, is the effect of the Defendant’s efforts on the purpose of an FLSA collective action. The court’s decision on this issue is bigger than this one case, and that concern is what has plagued the court about this situation from the first mention of the Agreement. The purposes of the FLSA and its collective action procedure factor into the court’s decision on this motion.
Congress passed the FLSA during the Great Depression to protect workers from overbearing practices of employers with greatly unequal bargaining power over them. See Roland Elec. Co. v. Walling, 326 U.S. 657, 668 n. 5 (1946) ( “The Bill was introduced May 24, 1937, [and] … accompanied by a Presidential message by Franklin D. Roosevelt …. ‘to protect the fundamental interests of free labor and a free people we propose that only goods which have been produced under conditions which meet the minimum standards of free labor shall be admitted to interstate commerce. Goods produced under conditions which do not meet rudimentary standards of decency should be contraband and ought not to be allowed to pollute the channels of interstate trade.’ “) (quoting 81 Cong. Rec. 4960, 4961). To further that purpose, § 216(b) of the FLSA authorizes an employee to file suit for and on behalf of himself and others similarly situated. See 29 U.S.C. § 216(b). Those employees who wish to join the lawsuit must give written consent or opt-in to the lawsuit, but they only know that they can do so once court-approved notice has been sent to them. See id…
In this case, the court finds that such goals are defeated if the court approves actions taken by defendants, such as those taken by Citi Trends in this case, that are designed and used to prevent employees from vindicating their rights in an FLSA collective action. The court wishes to make clear that it is not addressing a pre-lawsuit or pre-employment arbitration agreement between an employer and employee that would preclude participation in a collective action. Instead, this ruling only addresses the Agreement in this case that was presented to the specifically-targeted potential class of employees in the specific manner that gave those potential opt-in Plaintiffs no meaningful choice or known opportunity to refuse to sign without the fear of termination in a setting that was ripe for and calculated to produce perceived intimidation or coercion and when its very purpose and effect was to preclude participation in this lawsuit.
For these reasons, the court finds that the Agreement at issue in this case reeks of both procedural and substantive unconscionability in the context in which it was presented and obtained. The Agreement cannot and will not be enforced against Ms. Prevo, Ms. Alfred, or Ms. Cunningham, and the court will DENY Citi Trends’s motion to compel arbitration against them. In making this decision, the court notes that it found the testimony presented by the Defendant, specifically that from Ms. Council and Ms. Davis, particularly enlightening. In addition to the language of the documents themselves, the court finds that the concurrent timing of the ADR roll-out and the Plaintiffs’ preparation of the motion for conditional certification and court approved notice, and the manner in which the Agreement was presented weigh in favor of invalidating the Agreement as it relates to the SMs who were presented the Agreement during its initial roll-out in the summer of 2012.
The court truly believes it would be a derogation of the court’s responsibility if it were to approve employer conduct like that in this case that specifically undercuts the Congressional intent behind creating the FLSA collective action process for aggrieved employees, and the court does not take such action lightly.
In light of this reasoning, the court denied the defendant’s motion for reconsideration and held that the arbitration agreements, obtained from current employees were unenforceable.
Click Billingsley v. Citi Trends, Inc. to read the entire Memorandum Opinion.
A review of the docket shows that the defendant has filed an appeal to the Eleventh Circuit. Thus, this issue will likely get further review. Stay tuned for further developments….
Oxford Health Plans LLC v. Sutter
Although not an FLSA case, this case has far ranging effects throughout the litigation and arbitration worlds. The issue presented to the Court was whether an arbitrator exceeded his authority by rendering a clause construction of the parties’ arbitration agreement that permitted class arbitration, where the parties’ arbitration agreement was silent on its face as to the issue. The Court held that the arbitrator did not exceed his authority and, as the Third Circuit had prior, affirmed the District Court’s opinion upholding the arbitrator’s clause construction permitting class arbitration, because it was a well-reasoned opinion and the parties’ had explicitly asked the arbitrator to render a clause construction. In so doing, the Supreme Court distinguished this case from its prior case Stolt-Nielsen explaining that:
[ ] Oxford misreads Stolt-Nielsen: We overturned the arbitral decision there because it lacked any contractual basis for ordering class procedures, not because it lacked,in Oxford’s terminology, a “sufficient” one. The parties in Stolt-Nielsen had entered into an unusual stipulation that they had never reached an agreement on class arbitration. See 559 U. S., at 668–669, 673. In that circumstance, we noted, the panel’s decision was not—indeed, could not have been—”based on a determination regarding the parties’ intent.” Id.,at 673, n. 4; see id., at 676 (“Th[e] stipulation left no room for an inquiry regarding the parties’ intent”). Nor, we continued, did the panel attempt toascertain whether federal or state law established a “default rule” to take effect absent an agreement. Id., at 673. Instead, “the panel simply imposed its own conception of sound policy” when it ordered class proceedings. Id.,at 675. But “the task of an arbitrator,” we stated, “is to interpret and enforce a contract, not to make public policy.” Id.,at 672. In “impos[ing] its own policy choice,” the panel “thus exceeded its powers.” Id., at 677.
The contrast with this case is stark. In Stolt-Nielsen, the arbitrators did not construe the parties’ contract, and did not identify any agreement authorizing class proceedings. So in setting aside the arbitrators’ decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role. Here, the arbitrator did construe the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration. So to overturn his decision, we would have to rely on a finding that he misapprehended the parties’ intent. But §10(a)(4) bars that course: It permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly. Stolt-Nielsen and this case thus fall on opposite sides of the line that §10(a)(4) draws to delimit judicial review of arbitral decisions.
While the unanimous decision supports the idea that class arbitration is permissible where the parties’ agreement is silent on its face, as with its prior decisions on class arbitration issues, the decision also leaves many related issues unresolved.
Click Oxford Health Plans LLC v. Sutter to read the Court’s opinion and Justice Alito’s concurring opinion.
N.D.Ala.: Arbitration Agreements Obtained From Current Employees After Putative Collective Commenced Might Be Unenforceable
Billingsley v. Citi Trends, Inc.
This case was before the court on the plaintiffs’ motion for conditional certification as well as the plaintiffs’ motion for corrective action regarding meetings the defendant acknowledged having with putative class members after learning of the lawsuit. The court had previously denied the plaintiffs’ motion to strike declarations obtained from such putative class members, but deferred on the motion for corrective action. As discussed here, after the plaintiffs had commenced their putative collective action, but prior to the time they filed their motion for conditional certification, the defendant required putative class members to attend meetings with its management where it had putative class members sign blank declarations and a mandatory arbitration agreement. The court held that the documents may not be enforceable, and that class members who felt they signed same under duress would not be bound by the documents they previously signed.
Discussing the issue the court explained:
The court deferred ruling on the plaintiffs’ request for a corrective letter or court supervised notice that was embedded in the motion to strike. (Doc. 51, at 10–11). After the parties’ May 31, 2012 Status Conference and before the Plaintiffs’ deadline for filing their Motion for Conditional Certification and Notice, Citi Trends initiated company-wide in-person meetings between two corporate representatives and its SMs, who are potential collective class members in this case. At these meetings, with only a few exceptions, every SM completed a fillin-the-blank declaration about their job duties (doc. 40–7 and following) and signed an arbitration agreement that bound every SMs to arbitrate any claims he or she had against Citi Trends (doc. 47–6). The Human Resources Representative also presented every SM with a disclosure about this lawsuit and the effect of the arbitration agreement on his or her rights in the lawsuit. (Doc. 47–2).
As the court expressed in its memorandum opinion on the motion to strike, the individualized meetings that occurred between SMs and Citi Trends Human Resources Representatives are cause for concern. At these meetings, SMs waived their rights to bring any claims against Citi Trends in court, including participation in this litigation.
Especially when the employer-employee relationship is in play, the possibility of abuse is ripe in these type of unilateral communications. The Eleventh Circuit recognized the potential for coercion in such situations and held that the court had authority in Rule 23 class actions to invalidate opt-outs when they were procured through fraud, duress, or other improper conduct. Kleiner v. First Nat. Bank of Atl., 751 F.2d 1193, 1212 (11th Cir.1985). In cases such as this where Citi Trends has an obvious interest in diminishing the size of the potential class, a risk exists that these types of unsupervised communications will sabotage the employee’s independent decision-making regarding their involvement in the action. See id. at 1206. The court takes seriously its responsibility to see that an employer not engage in coercion or duress to decrease the size of a collective class and defeat the purpose of the collective action mechanism of the FLSA. Because of these concerns as more fully stated on the record, the court will GRANT IN PART AND DENY IN PART the Plaintiffs’ motion for court-supervised notice. Any potential plaintiffs who felt they signed the mandatory arbitration agreement under duress will still be allowed to opt-in to this collective action; the language of the notice will reflect that right.
8th Cir.: NLRB’s Holding in D.R. Horton Does Not Preclude Enforcement of FLSA Class/Collective Action Waiver
Owen v. Bristol Care, Inc.
While district courts that have considered the issue since the NLRB handed down its decision in D.R. Horton last year have reached divergent opinions on its effect regarding the enforceability of class waivers, the first circuit to consider the issue has rejected D.R. Horton’s applicability in the FLSA context. By way of background, last year the NLRB held that the existence of a collective action waiver in an employment agreement constituted an unfair labor practice, because it improperly restricted the “concerted activity” of employees who are subject to same. Following the decision, courts have reached different conclusions as to whether the NLRB’s decision necessarily rendered such waivers unenforceable in the context of FLSA collective action waivers. In this case, the district court held that the parties arbitration agreement was unenforceable, because it contained such a waiver. However, on appeal, the Eight Circuit reversed, holding that the NLRB’s decision in D.R. Horton did not render the arbitration agreement at issue unenforceable.
Discussing this issue, the Eight Circuit opined that it was not obligated to defer to the National Labor Relations Board’s interpretation of Supreme Court precedent, under Chevron or any other principle:
Finally, in arguing that there is an inherent conflict between the FLSA and the FAA, Owen relies on the NLRB’s recent decision in D.R. Horton, which held a class waiver unenforceable in a similar FLSA challenge based on the NLRB’s conclusion that such a waiver conflicted with the rights protected by Section 7 of the NLRA. 2012 WL 36274, at *2. The NLRB stated that Section 7’s protections of employees’ right to pursue workplace grievances through concerted action includes the right to proceed as a class. Id. However, D.R. Horton carries little persuasive authority in the circumstances presented here. First, the NLRB limited its holding to arbitration agreements barring all protected concerted action. Id. at *16. In contrast, the MAA does not preclude an employee from filing a complaint with an administrative agency such as the Department of Labor (which has jurisdiction over FLSA claims, see 29 U.S.C. § 204), the Equal Employment Opportunity Commission, the NLRB, or any similar administrative body. Cf. Gilmer, 500 U.S. at 28, 111 S.Ct. 1647 (upholding an arbitration agreement that allowed Age Discrimination in Employment Act claimants to pursue their claims before the Equal Employment Opportunity Commission). Further, nothing in the MAA precludes any of these agencies from investigating and, if necessary, filing suit on behalf of a class of employees. Second, even if D.R. Horton addressed the more limited type of class waiver present here, we still would owe no deference to its reasoning. Delock v. Securitas Sec. Servs. USA, –––F.Supp.2d ––––, ––––, No. 4:11–CV–520–DPM, 2012 WL 3150391 (E.D.Ark. Aug. 1, 2012), at *3 (“The Board’s construction of the [NLRA] ‘is entitled to considerable deference and must be upheld if it is reasonable and consistent with the policies of the Act,’ … the Board has no special competence or experience in interpreting the Federal Arbitration Act.” (quoting St. John’s Mercy Health Sys. v. NLRB, 436 F.3d 843, 846 (8th Cir.2006))). The NLRB also attempted to distinguish its conclusion from pro-arbitration Supreme Court decisions such as Concepcion. D.R. Horton, 2012 WL 36274, at *16. This court, however, is “not obligated to defer to [the Board’s] interpretation of Supreme Court precedent under Chevron or any other principle.” Delock, –––F.Supp.2d at ––––, 2012 WL 3150391, at *3 (quoting N.Y. N.Y. LLC v. NLRB, 313 F.3d 585, 590 (D.C.Cir.2002)). Additionally, although no court of appeals has addressed D.R. Horton, nearly all of the district courts to consider the decision have declined to follow it.
The court also opined that there is nothing inherently wrong with a collective action waiver in employment agreements.
Click Owen v. Bristol Care, Inc. to read the entire Opinion.
Anyone who has ever moved for or opposed a motion for conditional certification (i.e. a “Stage 1” motion) of a collective action is likely familiar with the common defense tactic whereby a defendant asserts that the named plaintiff and members of the putative class are not similarly situated. Typically a defendant argues that individualized issues pertaining to the claims of the named plaintiff(s) (and members within the putative class) render the case ill-suited for class/collective treatment. As discussed below, three recent decisions discuss three separate issues related to this analysis. In the first, a court held that a pro se plaintiff could not adequately serve the interests of the putative class and denied conditional certification. However, in the second and third cases discussed below, the courts rejected the defendants’ contentions that: (1) an undocumented (“illegal”) immigrant was ill-suited to serve as a representative plaintiff; and (2) issues regarding whether specific putative class members signed binding arbitration agreements relating to the issues raised by the named-plaintiff were not properly raised at stage 1.
Pro Se Plaintiff Inadequate Representative for Collective Action
Koch v. CHS Inc.
In the first case, the pro se plaintiff (apparently fairly savvy) moved for conditional certification. Denying the motion, the court held that a pro se plaintiff cannot pursue their claims in a collective action for lack of adequacy of representation. Specifically, the court explained:
The issue of whether a pro se plaintiff can sue on behalf of other members in a collective action is one of adequacy of representation. Determining adequate representation is typically based on a two-part inquiry: “First, the named representatives must appear able to prosecute the action vigorously through qualified counsel, and second, the representatives must not have antagonistic or conflicting interests with the unnamed members of the class.” Lerwill v. Inflight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir.1978). Courts have generally concluded that a pro se plaintiff cannot pursue claims on behalf of others in a representative capacity. See Simon v. Hartford Life, Inc., 546 F.3d 661, 664 (9th Cir.2008); see also Johns v. County of San Diego, 114 F.3d 874, 876 (9th Cir.1997) (“While a non-attorney may appear pro se on his ow n behalf, he has no authority to appear as an attorney for others than himself.”); C.E. Pope Equity Trust v. United States, 818 F.2d 696, 697 (9th Cir.1987) (holding that a pro se litigant may not appear as an attorney for others). Here, because Koch is a pro se litigant, he cannot pursue claims on behalf of other CHS employees in a representative capacity.
The rule holds true for pro se plaintiffs seeking to bring collective action suits under the F LSA. Morgovsky v. AdBrite, Inc. ., No. C10–05143–SBA, 2012 WL 1595105 *4 (N.D.Cal. May 4, 2012) (denying pro se plaintiff’s motion to bring a collective action under the FLSA and dismissing collective action claims); Spivey v. Sprint/United Mgt. Co., No. 04–2285–JWL, 2004 WL 3048840 (D.Kan. Dec.30, 2004) (holding that a claim under 29 U.S.C. § 216(b) cannot be brought by a pro se plaintiff).
Accordingly, the Court agrees with CHS that Koch, because he proceeds in the litigation pro se, cannot represent the class members on whose behalf he purports to bring suit. Therefore, proceeding with the litigation as a collective action is not permitted pursuant to 29 U.S.C. § 216(b). The motion will be denied.
Click Koch v. CHS Inc. to read the entire Memorandum Decision and Order.
Named-Plaintiff’s Immigration Status Has No Bearing on Similarly Situated Analysis
Torres v. Cache Cache, Ltd.
In the second case of interest, arising from alleged tip pool violations at defendant’s restaurant, the defendant opposed conditional certification, in part, based on the fact that the named-plaintiff was allegedly an undocumented immigrant. The court rejected this notion, citing well-established authority that an FLSA plaintiff’s immigration status is irrelevant to a claim inasmuch thereunder, inasmuch as same seeks payment for work already performed. Discussing this issue the court reasoned:
Finally, in an apparent attempt to distinguish Plaintiff from other proposed collective action members, Defendants note his status as an illegal immigrant and involvement in other similar FLSA lawsuits. Neither of these issues, however, is likely to provide Defendants with a valid defense that is unique to Plaintiff. First, there are a number of cases finding that evidence of immigration status has no relevance in an FLSA action. See e.g. Reyes v. Snowcap Creamery, Inc., 2012 WL 4888476 at *2 (D.Colo. Oct.15, 2012) (recognizing that “weight of authority clearly holds that a plaintiff’s immigration status is irrelevant in an FLSA action” and citing supporting authority). It is also questionable whether Defendants will be able to introduce evidence of other lawsuits involving Plaintiff. See Van Deelen v. Johnson, 2008 WL 4683022 at *2 (D.Kan. Oct.22, 2008) (evidence of plaintiff’s prior lawsuits cannot be admitted for purpose of proving that plaintiff is litigious but may be admissible for other purposes).
Click Torres v. Cache Cache, Ltd. to read the entire Order.
Whether Putative Class Members’ Claims Are Subject to Arbitration is an Issue Reserved for Stage 2
Hernandez v. Immortal Rise, Inc.
In the final decision, the court had before it the Report and Recommendation of the magistrate judge recommending conditional certification. As it had in its opposition to the underlying motion, the defendant argued that members of the putative class who had previously signed agreements to arbitrate their FLSA claims, were not similarly situated to the plaintiff and the remainder of the putative class. As such, the defendant argued such putative class members should be excluded from receiving notice of their right to join the case by opting in. Rejecting this contention, the court held that the issue of whether (and who) may have signed arbitration agreements, is an issue reserved for Stage 2 (decertification) analysis, and is not properly addressed at the conditional certification stage:
Next, defendants argue that the proposed class should be limited to cashiers and those who had not signed arbitration agreements, excluding grocery packers and delivery workers, whom defendants never employed, and employees subject to arbitration agreements. However, these are issues of fact that should be determined during discovery rather than at this preliminary stage. See D’Antuono v. C & G of Groton, Inc., No. 11–cv–33, 2011 U.S. Dist. LEXIS 135402, at *12–13 (D.Conn. Nov. 23, 2011) (holding that the enforceability of arbitration agreements should not be determined during conditional class certification); Lujan v. Cabana Mgmt., No. 10–cv–755, 2011 U.S. Dist. LEXIS 9542, at *23–24, 2011 WL 317984 (E.D.N.Y. Feb. 1, 2011) (quoting Realite v. Ark Rests. Corp., 7 F.Supp.2d 303, 307 (S.D.N.Y.1998)) (holding that defendants’ contention that its restaurants constituted separate entities raised a contested issue of fact, and was therefore not a basis for denying conditional class certification). Thus, Judge Bloom correctly found that the proposed class should not be limited as defendants propose.
Click Hernandez v. Immortal Rise, Inc. to read the entire Order.
D.N.J.: District Court Denies Motion to Vacate Clause Construction Permitting Arb to Proceed on Class Basis, Where Contract Was Silent as to Class Issues; U.S.S.C. to Take Up Issue
Opalinski v. Robert Half Intern., Inc.
Another court, this one within the Third Circuit (which had previously ruled on the issue), has held that an arbitrator does not exceed his or her authority when the arbitrator permits FLSA claims to proceed on a class-wide basis, in the face of an arbitration agreement that the parties stipulate is “silent” as to class issues. Determining that same was permissible under Stolt-Nielsen and under principles of New Jersey contract law, the court explained:
At issue here is whether the Award should be vacated because the Arbitrator exceeded her powers by finding that the Agreements allow for class arbitration. Defendants contend that the Arbitrator’s finding was erroneous and violates Supreme Court precedent. See Stolt–Nielsen v. AnimalFeeds Int’l Corp., –––U.S. ––––, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) (finding that arbitration panel exceeded its powers by imposing its own policy choice instead of interpreting and applying the agreement of the parties, and explaining that a party cannot be compelled to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so). Defendants note that the Agreements did not expressly authorize class arbitration and argue that an agreement to arbitrate does not implicitly authorize class arbitration, nor does the non-existence of an express class action waiver imply that the parties agreed upon class arbitration.
Defendants’ arguments are unpersuasive particularly given the binding precedent of Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d Cir.2012), which is directly on point. In light of Stolt–Nielsen, the Third Circuit Court of Appeals in Sutter evaluated an arbitrator’s decision that class arbitration was allowed under a contract that was silent on the issue of class arbitration. The court explained that while “Stolt–Nielsen does prohibit an arbitrator from inferring parties’ consent to class arbitration solely from their failure to preclude that procedure,” it did not establish a rule that class arbitration is only allowed where an arbitration agreement expressly provides for class arbitration procedures. Sutter, 675 F.3d at 222, 224 . Instead, an arbitrator can interpret an arbitration clause to allow for class arbitration, even if the clause does not expressly provide for it, if the arbitrator articulates a contractual basis for that interpretation. Id. at 224. The arbitrator in Sutter examined the parties’ intent and used contract interpretation principles to reach his conclusion. He described the text of the arbitration clause—which provided that “no civil action concerning any dispute arising under this [a]greement shall be instituted before any court”—as broad and embracing all conceivable court actions including class actions. He further explained that an express carve-out for class arbitration would be required to negate this reading of the clause. Id. at 218. When reviewing the award, the court explained that the arbitrator had the authority to find for class arbitration because such a finding had a contractual basis. Id. at 223–24.
In light of binding Third Circuit authority and basic principles of New Jersey law regarding contract interpretation, the court held that the arbitrator was within her powers to hold that the arbitration of plaintiff’s claims could proceed on a class-wide basis, in the absence of an explicit class-waiver in the arbitration agreement.
Click Opalinski v. Robert Half Intern., Inc. to read the entire Opinion & Order.
Significantly, within days of the Opalinkski decision, the Supreme Court agreed to take up this very issue. To that end, the Supreme Court accepted cert of the Sutter case, on which the Opalinski relied. The question certified by the Supreme Court is:
Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively “agreed to authorize class arbitration,” Stolt-Nielsen, 130 S. Ct. at 1776, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.
Click Oxford Health Plans LLC v. Sutter to read more about the Supreme Court’s decision to accept cert.
Respondent-Employer Enjoined From Requiring Current Employee Putative Class Members From Waiving Right to Participate in Class/Collective Action, Once Putative Class/Collective Action Pending
Herrington v. Waterstone Mortgage Corp.
In this case, the claimant-employees had initially filed their case as a class/collective action in federal court. Pursuant to arbitration agreements that the plaintiffs had signed during their employment, the defendant successfully moved to compel the plaintiffs to pursue their claims in arbitration. Because the arbitration agreement at issue called for arbitration pursuant to the American Arbitration Association’s (AAA) rules governing arbitration, the plaintiffs successfully argued that a Rule 23 type opt-out mechanism rather than 216(b)’s opt-in governed as the appropriate class mechanism. Twelve (12) days after the arbitrator’s holding that an opt-out class procedure would govern, the defendant began requiring all current employees to sign a new arbitration clause, which if enforced, would have precluded the current employees from participating in the putative class action, yet to be certified. Arguing that the respondent-employer’s unilateral effort to defeat putative class members’ participation in the arbitration required thorough remedial measures, the claimant-employees moved for a protective order and temporary restraining order to:
(1) Enjoin any further dissemination of the letter to current employees with the class-waiver form; (2) Enjoin any effort by the respondent-employer or its counsel to chill participation in the case, including prohibiting any further unauthorized communication with any class members concerning joining the case, except as approved by the arbitrator; (3) Enjoin retaliation by [Waterstone] against any individual participating in the case; (4) Direct that [Waterstone] (in a form and manner supervised by the Arbitrator or on consent of claimants’ counsel) promptly notify all class members who received Exhibits A and B of the impropriety of [Waterstone’s] acts and the invalidity of the waivers it solicited; (5) Sanction [Waterstone] with monetary relief for its improper behavior [ ] so that [Waterstone] does not achieve any of the benefit of chilling individuals from participating in this case; (6) Reserve the opportunity for individuals to join the case post-judgment, should they opt-out now, given their employer’s clear statement of its desire that they not join this case; (7) Award Claimant’s costs and attorneys’ fees for the time spent on the motion; [and] (8) Award such further relief in the future, as may become necessary to remedy the ill effects of [Waterstone’s] improper behavior.
In opposition, the respondent-employer argued that the motion should be denied because: (1) the arbitrator lacked jurisdiction over the issue presented, because the parties had not agreed to arbitrate the issue of the permissibility of the subsequent class-waivers; (2) it was procedurally improper, because a class or collective action had yet to be certified; and (3) the employees had not demonstrated the requisite irreparable harm to warrant the relief sought.
Initially, the arbitrator rejected the respondent-employer’s jurisdictional argument:
It is true that a class has not yet been certified. Indeed, the clause-construction award that contemplates a class arbitration may itself be vacated by the District Court. However, even if the motion to certify a class should be denied, or if the Court should vacate the clause-construction award, the arbitration may continue as a collective proceeding (opt in) as a result of Judge Crabb’s direction that Herrington “must be allowed to join other employees to her case.” (D. Ct. Decn. at 18).
The arbitrator similarly rejected the argument that the relief sought was premature:
Whether a proceeding continues as a class procedure or a collective procedure, it must be protected from coercive or misleading communications that are designed to, or have the effect of, persuading or intimidating potential claimants to withhold their participations. The law realistically recognizes that such improper communications may be just as effective pre-certification as post-certification. Therefore, it is within the jurisdiction – indeed, it is the duty – of the judge or arbitrator before whom such a proceeding is pending to protect the integrity of the proceeding and to require that all information conveyed by the parties to potential class members about the proceeding be accurate, not coercive, and not misleading.
Waterstone’s argument that control over communications cannot arise until a class is certified is simply wrong. The power (jurisdiction) to control the parties’ communications to class members or putative class members can arise at least as early as when the initial pleading is filed. See, e.g. Hoffman-LaRoche at 487 (“[I]t lies within the discretion of a district court to begin its involvement early at the point of the initial notice.”).
The arbitrator added:
Waterstone’s contention that it has “has never consented to arbitrate its management decisions as to the nature and form of employment agreements with employees who are not parties to this case” (Jurisd. Memo at 1) assumes that this arbitration is about what kind of dispute resolution provision going forward Waterstone may provide in its form employment agreement. The assumption is false. Herrington brought this arbitration to recover past minimum wages and overtime compensation allegedly due to her and to her fellow employees. Jurisdiction over that claim was established with the filing of the demand for arbitration, and it is the duty of the arbitrator to preserve and protect the integrity of the proceedings with respect to that claim. The entire dispute that is subject to this arbitration is therefore to be resolved under the dispute resolution provisions of the pre-Amendment employment agreement that governs Herrington’s claims.
Instead, the arbitrator held that once the proceeding had commenced, the employer-respondent could not require the potential class members to waive their rights to participate in the case, as members of the class:
However, whatever may be the legality or enforceability of either Option A or Option B in future disputes that might arise between Waterstone and its mortgage-loan employees, those amendments can have no impact on this Herrington arbitration or on the employee class’s rights or choices in it. Once Herrington commenced her arbitration under the original arbitration clause in the employment agreement, Waterstone could not change the nature or course of this pending arbitration by requiring the putative claimants in this proceeding to agree to an entirely different dispute-resolution regime. This arbitration must, therefore, continue under the Agreement that governed when it was commenced, the Agreement that Waterstone, itself, argued successfully to the District Court requires Herrington’s dispute to be arbitrated.
Thus, the arbitrator granted the claimant-employees’ their requested relief.
Click Herrington v. Waterstone Mortgage Corp. to read the entire Decision and Order on Claimant’s Application for Protective Order, Temporary Restraining Order and Preliminary Injunction.