The Eastern District Court of California has held a class action arbitration agreement waiver unenforceable and refused to compel arbitration against a former employee seeking class action status. In Mathias v. Rent-A-Center, Inc., No. S-10-1476 (E.D. Cal. Sept. 15, 2010), Ryan Mathias, a former Assistant Manager of a Rent-A-Center (RAC) located in California filed a class action lawsuit in California state court which alleged eight claims related to his employment with RAC, including claims related to unpaid overtime and wages. RAC removed the case to federal court and filed a motion to compel arbitration. RAC relied on an arbitration clause contained in an employment agreement between Mathias and RAC that also included a nonseverable class action waiver provision. While both parties agreed that the Federal Arbitration Act applied, the opinion ultimately hinged on the California Supreme Court’s decision in Gentry v. Sup. Ct., 42 Cal.4th 443 (2008). In Gentry, the California Supreme Court held that a class action waiver may be unenforceable in certain circumstances when it performs as an exculpatory clause. Gentry also stated that wage, hour and overtime cases would similarly have an exculpatory effect which would “frequently if not invariably,” undermine the unwaivable statutory right to overtime pay in California. After noting that it could not categorically hold all class action waivers unenforceable per se in overtime actions, the Gentry court held that a court must determine whether a waiver is in fact exculpatory by considering a number of specific factors. After considering the factors, if a court determines that class proceedings “are significantly more effective and practical and that disallowance of such proceedings will likely lead to less comprehensive enforcement, ‘it must invalidate the class arbitration waiver. . .’” The Gentry court held that a class waiver could also be invalid if it was found to be both procedurally and substantively unconscionable under California law. In support of his case, Mathias argued that his individual recovery was likely to be modest based on his salary at termination, retaliation against members of the putative class was likely and individual class members were unlikely to be aware of their rights. RAC responded by arguing the recent Supreme Court holding in Stolt-Nielsen v. Animalfeeds Int’l, Inc., 130 S.Ct. 1758 (2010) preempted the decision in Gentry. The Eastern District Court was not persuaded by RAC, however, and noted that the decision in Stolt-Nielsen and the subsequent court of appeals opinions interpreting it added weight to its decision to apply California law to evaluate the class action waiver at issue. According to the Eastern District: Nowhere in the opinion did the Court even infer that state law regarding contract interpretation is preempted where the rule of interpretation is based upon policy concerns. In fact, the court specifically held the arbitration panel should rely on state contract law in determining whether to impose class arbitration… This court has not found any decisions of the courts of appeals that interpret Stolt-Nielsen as holding that the FAA preempts state rules of contract interpretation derived from public policy concerns. For this reason, the court applies California law to evaluate the class action waiver at issue in this case. The California court found Mathias successfully demonstrated that a waiver would undermine a statutory right such that the waiver would be exculpatory under the factors set forth in Gentry. Because the arbitration agreement in the employment contract stated the class waiver was not severable, the court held the entire arbitration agreement unenforceable and denied RAC’s motion to compel arbitration. Disputing addressed the recent decision in Stolt-Nielsen v. Animalfeeds Int’l, Inc. many times since it was decided: We blogged on the case itself here; In Professor Stipanowich’s guest post here; In Professor Strong’s guest post here and In an article entitled “Unresolved Questions in the Wake of the U.S. Supreme Court’s Class Arbitration Ruling in Stolt-Nielsen v. AnimalFeeds International,” by Robert E. Crotty here. Technorati Tags: law, ADR, arbitration

Will Pryor has once again written an annual survey of alternative dispute resolution (ADR) law in Texas for the SMU Law Review. This is the third year ADR was included in Law Review’s Annual Survey of Texas Law issue and also the third time Pryor has provided his expertise and insight. In “Alternative Dispute Resolution,” 63 SMU Law Review 275 (2010), Pryors’s article largely concerns developments in Texas arbitration law. He notes the shake-up caused by the U.S. Supreme Court’s 2008 decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), led “appellate courts everywhere. . . to reevaluate and reverse decades of appellate law. . . ” After touching upon Moore v. Altra Energy Technologies, Inc., 295 S.W.3d 404 (2009), and its contribution to Texas mediation law, the remainder of the article is focused on arbitration. The bulk of arbitration cases discussed in the article were sub-divided into one of four sets: cases where an arbitration agreement was enforced; cases where an arbitration agreement was not enforced; cases where an arbitration award was confirmed; and cases where arbitration award was set aside. As in his previous surveys, Pryor’s summaries provide a convenient overview of the past year’s developments in alternative dispute resolution law. Disputing has blogged on several of the cases discussed in Pryor’s article: Hall Street Associates, L.L.C. v. Mattel, Inc. was blogged about many times including here, here and here. In re Labatt Food Service, L.P. was discussed here, here and here. Graves v. B.P. America, Inc. here, here and here. Perry Homes v. Cull here. In re Poly-America, L.P. was described here and here. Technorati Tags: arbitration, ADR, law

The Fort Worth Appeals Court has held in a memorandum opinion that an arbitration clause does not constitute a jury waiver. In In re Professional Pharmacy II, No. 2-10-163-CV, (Tex. App. – Fort Worth, September 23, 2010) the relator (Professional Pharmacy) sought a writ of mandamus from a district court’s March 8, 2010 order granting JP Morgan Chase Bank, NA’s (JP Morgan’s) motion to strike Professional Pharmacy’s jury demand and enforce a contractual waiver of jury trial. In 2008, Professional Pharmacy filed a suit against JP Morgan which alleged breach of a depository contract, sought declaratory relief and requested a jury trial. For more than eighteen months, the parties conducted discovery, filed motions and filed a joint motion for continuance. In February 2010, JP Morgan filed a motion to strike Professional Pharmacy’s jury demand and enforce a contractual waiver of jury trial allegedly contained within a “master account agreement.” The complete provision stated: Most disputes arising under this Agreement related to accounts or services hereunder are subject to mandatory binding arbitration. Rights to trial by judge or jury are waived hereby. Bank must be notified by depositor of claims and proceedings to enforce any such claims must be brought, within the time requirements established in the Account Disclosures and Regulations. Professional Pharmacy responded: “JP Morgan had failed to meet its burden to prove the existence of a valid and enforceable jury waiver and that the provision relied upon by JP Morgan was not a jury waiver but rather an unenforceable arbitration provision that had been waived by JP Morgan’s actions.” According to Professional Pharmacy, the arbitration clause was unenforceable because JP Morgan filed the motion eighteen months after Professional Pharmacy filed its jury demand and a mere forty-six days before trial. A trial court granted JP Morgan’s motion on March 8, 2010. The next day, Professional Pharmacy paid a jury fee. Professional Pharmacy then filed a petition for a writ of mandamus. According to the Appeals Court, “’[A] difference exists between a jury trial waiver and an agreement to arbitrate disputes.’ See Chambers v. O’Quinn, 305 S.W.3d 141, 149 (Tex. App.—Houston [1st Dist.] 2009, no pet.).” The court applied basic rules of contract construction in an effort to ascertain the intent of the parties and stated: The first sentence in the provision at issue clearly relates to arbitration as the method that has been selected for resolving disputes. The sentence waiving trial by judge or jury also clearly contemplates arbitration as it attempts to take the dispute resolution out of the court system altogether. “Judge” and “jury” are mentioned in the same sentence, and there is nothing to indicate the waiver of jury standing alone. Accordingly, JP Morgan’s contention that the provision is a valid jury waiver fails. See Chambers, 305 S.W.3d at 149. Moreover, even if this provision was meant to serve as a jury waiver, it would fail because it is not conspicuous. See In re Bank of America, 278 S.W.3d 342, 344–45 (Tex. 2009) (per curiam); Prudential, 148 S.W.3d at 134. The Court of Appeals conditionally granted Professional Pharmacy’s writ of mandamus and instructed the lower court to vacate its earlier order granting JP Morgan’s motion to strike. Disputing discussed jury waivers in the context of In re Bank of America last year here and here. Technorati Tags: ADR, law, arbitration

by Holly Hayes U.S. Politics Today reported that in Connecticut, “as of July 1, the presiding judge over a medical malpractice case must refer the case to a 120-day mediation period or other alternative dispute resolution (ADR) process ‘before the close of proceedings.’” The stated purpose of the new statute which mandates mediation in medical malpractice cases is to achieve a “prompt settlement or resolution of the civil action.” The hope is that cases with very clear liability issues or those that are not meritorious to begin with can be settled before incurring the expenses of a trial. While there are some critics of the new law, it appears there is consensus that it will not resolve “big-ticket” malpractice cases. The new law may help avoid protracted litigation during the resolution of smaller cases, however. In August, we reported on an American Medical Association (AMA) survey of 5,825 physicians about medical liability lawsuits that said: The majority of lawsuits never made it to the courtroom, according to 2008 data from the Physician Insurers Assn. of America (PIAA), a trade group representing liability insurance companies owned or operated by physicians, hospitals and other health care professionals. Sixty-five percent were dropped, dismissed or withdrawn. About one in four claims was settled, and 4.5% were decided by alternative dispute mechanism. Of the 5% that went to trial, defendants won in 90% of cases, the PIAA said. But fighting a claim is costly. Defense against a claim averaged $22,163 for suits dropped, dismissed or withdrawn, and more than $100,000 for cases that went to trial, according to PIAA data. Let us hear from you about mandating mediation in medical liability cases. Holly Hayes is a mediator at Karl Bayer, Dispute Resolution Expert where she focuses on mediation of health care disputes. Holly holds a B.A. from Southern Methodist University and a Masters in Health Administration from Duke University. She can be reached at holly@karlbayer.com. Technorati Tags: Mediation