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Gentry - Opt-out clause is not a safe harbor for unconscionability
August 30, 2007 by Ross Runkel at LawMemo
Giving an employee a 30 day period in which to opt out of an arbitration agreement will not automatically insulate an arbitration agreement from unconscionability analysis.
Gentry v. Superior Court [Circuit City] (California 08/30/2007) (4-3)
Gentry brought a class action suit claiming that the employer had misclassified salaried customer service managers as exempt from the overtime provisions of the California Labor Code. Because Gentry had signed an agreement to arbitrate, the trial court ordered arbitration and the California Court of Appeal affirmed.
The California Supreme Court (4-3) reversed and remanded.
Lower courts rejected Gentry's claim that the entire arbitration agreement was unconscionable, basing their decision on the fact that Gentry was given a 30 day period in which he could opt out of arbitration. The idea was that this eliminated any "procedural" unconscionability.
The California Supreme Court held that this opt-out provision did not insulate the arbitration agreement from unconscionability analysis.
The court found that there was still some procedural unconscionability because (a) the employer's explanation of the benefits of arbitration was "markedly one-sided"; and (b) it was "not clear that someone in Gentry's position would have felt free to opt out."
The court remanded for further unconscionability analysis of clauses that shortened the statute of limitations, limited backpay remedies, capped punitive damages, and provided that "generally" each party is liable for their own attorney fees.
[For the court's analysis of class arbitration waivers, go here.]
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Gentry - New attack on class action waivers
August 30, 2007 by Ross Runkel at LawMemo
Shifting away from "unconscionability" doctrine, the California Supreme Court relied on "public policy" to say that some class arbitration waivers will be illegal.
Gentry v. Superior Court [Circuit City] (California 08/30/2007) (4-3)
Gentry brought a class action suit claiming that the employer had misclassified salaried customer service managers as exempt from the overtime provisions of the California Labor Code. Because Gentry had signed an agreement to arbitrate, and the agreement contained a class action waiver, the trial court ordered arbitration on an individual basis. The California Court of Appeal affirmed; the California Supreme Court (4-3) reversed.
The California Supreme Court held that in some cases a class arbitration action waiver may be contrary to public policy.
Rather than relying on the unconscionability doctrine, the court focused on the fact that Gentry's claim dealt with the "unwaivable" statutory right to receive overtime pay.
The court concluded that
"under some circumstances such a provision would lead to a de facto waiver and would impermissibly interfere with employees' ability to vindicate unwaivable rights and to enforce the overtime laws."
"[W]hen it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can 'vindicate [their] unwaivable rights in an arbitration forum.'" The court remanded for findings on these issues.
[For the court's analysis of unconscionability, go here.]
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NASD arbitrators botched attorney fee award
August 10, 2007 by Ross Runkel at LawMemo
A prevailing plaintiff is entitled to statutory attorney fees in an ADEA case, but NASD arbitrators acted "in manifest disregard of law" by capping the fee award by the amount agreed to in the attorney-client fee agreement.
Bernhard Porzig claimed his employer discharged him in violation of the Age Discrimination in Employment Act (ADEA), and his claim went to arbitration by a National Association of Security Dealers (NASD) arbitration panel.
The panel found for Porzig on the merits and awarded $220,079. The panel did not award attorney fees or costs, and assessed $13,840.75 in forum, filing, and arbitrators' fees against Porzig. The trial court vacated the award as to attorney fees and costs.
Porzig's attorney represented to the panel that $82,437.81 was Porzig's obligation under the attorney fee agreement. The panel's revised award included $83,500 in attorney fees plus an order that Porzig's lawyer repay $82,437.81 to Porzig.
Porzig v. Dresdner, Kleinwort, Benson (2nd Cir 08/07/2007)
The 2nd Circuit held that the attorney fee award was "in manifest disregard of law" and the panel had no jurisdiction to order the attorney to return funds to Porzig.
- As to attorney fees, the court concluded that the arbitrators had used the contingency fee agreement to set a cap, which is contrary to established precedent. In ADEA cases, a prevailing plaintiff's attorney fees are normally calculated by a lodestar analysis and should include fees for pursuing the statutory right to fees.
- As to the panel's award directing the attorney to reimburse fees, the court the court held this to be a violation of the Federal Arbitration Act (FAA) because neither the attorney nor Porzig had agreed to arbitrate the attorney fee contract.
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