Congressional Republicans, emboldened by the GOP’s control over all three branches of the federal government, have launched a frontal assault on consumers with a flurry of bills aimed at crippling the class-action lawsuit.

Class actions are often the only way consumers and other victims can hold big businesses accountable for harms that would otherwise be too small to justify individual lawsuits. Those big businesses and their Republican allies in Washington have long sought to gut the power of class actions.

A small sampling of people who could not have achieved justice without class actions includes Ponzi scheme victims and recipients of blood products tainted with HIV or AIDS.

Whether and how class actions can be “certified” to proceed are governed by complex procedural rules set out and continually reviewed by the judicial branch under the auspices of the Rules Enabling Act. The House bills circumvent—and inject partisan politics into—this longstanding judicial review process.

The existing rules are already restrictive in order to prevent frivolous litigation. The GOP’s bills would rewrite many of the rules to make it nearly impossible for a class action to survive to trial.

U.S. Rep. Jamie Raskin (D-MD) has said the legislation would put class actions under “the guillotine” and would be a big “wet kiss to large corporate polluters and tortfeasors, but gives the finger to millions of American citizens who suffer injuries from these defendants.” And the head of a nonprofit public-interest law organization said that “Christmas has certainly come early for corporate America.”

Several of the bills—which would also affect victims of discrimination, asbestos, medical malpractice, and pollution—have already passed in House of Representatives along party lines. Similar so-called “legal reform” or “tort reform” efforts have passed the House in years past, only to die in the Senate. Even if some of these bills do make it through both houses, it’s unclear whether President Donald Trump would sign most of them.

Here’s a rundown of the deceptively named House resolutions and their progress to date.

“Fairness in Class Action Litigation Act of 2017” (HR 985); “Furthering Asbestos Claim Transparency (FACT) Act of 2017” (HR 906). HR 906 was rolled into HR 985 and the combined final bill passed in the House on March 9, 2017, by a vote of 220 to 201. Together they aim to eviscerate “nearly all facets of class action” and multi-district injury litigation.

HR 985 would require that class members “be ascertainable” as a prerequisite for class certification. Currently, most class members cannot be located until after discovery has been completed and liability determined. This putting of the cart before the horse would close the courthouse doors to most class actions.

HE 985 would also require class representatives to show that all class members have suffered the “same type and scope of injury.” While this seems reasonable in theory, the reality is that among thousands of class members, there are often many similar but different types of injuries that nevertheless resulted from the same wrongdoing. They would not be resolvable in the same lawsuit.

Further still, HR 985 would prevent class representatives from employing class counsel that “have formerly represented the class representative in any matter.” This is a huge disruption—and a potentially unconstitutional interference in the attorney-client relationship that could prevent nonprofits like “the NAACP from bringing multiple cases with the same attorneys.” Moreover, the bill would limit class counsel’s attorney fees in civil rights cases (and other suits in which the plaintiffs seek an injunction) to a percent of the “value of the equitable relief.” This is harmful because it’s difficult or impossible to put a dollar value on a civil rights injunction. As one civil rights attorney put it, “How do you value Brown v. Board of Education?”

Additionally, the bill would stay discovery while certain motions (e.g., to dismiss the case or transfer it to a different jurisdiction) are pending and would allow immediate appeals of class certification as of right (they currently require the approval of the appellate court). Combined, these measures would add years of delay in the middle of class actions and flood appellate courts with countless meritless class certification challenges.

The FACT Act (now part of HR 906) would make it harder for asbestos victims to get paid and would intimidate them by publicizing their names, addresses and the last four digits of their Social Security numbers if they are involved in asbestos litigation.

“The Lawsuit Abuse Reduction Act of 2017” (HR 720) passed the House 230-188 on March 10. HR 720 would make it mandatory for judges to impose money sanctions on attorneys who file “frivolous” cases in federal court. These “Rule 11” sanctions are currently optional and can be avoided if a plaintiff withdraws the allegedly frivolous claim or pleading within 21 days. There’s no evidence that frivolous lawsuits have increased. Instead, this bill would simply discourage attorneys from taking on meritorious but borderline cases and would lead to increased litigation over sanctions orders.

“The Innocent Party Protection Act” (HR 725) passed in the House on March 9, 224-194. It’s intended to make it easier for corporate defendants to remove cases from state courts (where plaintiffs tend to do better) to federal court, where the rules tend to favor defendants.

“The Protecting Access to Care Act of 2017” (HR 1215) would punish people covered under the Affordable Care Act and other government programs (presumably including Medicare and Medicaid) by imposing a $250,000 cap on pain and suffering and other “noneconomic” damages in medical malpractice cases if the good or service was paid for by a government program. A similar law in California has had a devastating effect on victims of medical malpractice here. This is one measure that President Trump would likely sign if it arrived on his desk as he supported limiting malpractice awards during his campaign.

 

A former L.A. Fitness member who accused the gym of tricking him into buying an annual membership he didn’t want cannot be held to an arbitration agreement he wasn’t shown until after he electronically signed it, a federal district court held.

When Beau Briones walked into the L.A. Fitness in Long Beach, California, he just wanted to cancel his cancel his personal training membership. But Briones said a salesperson pressured him into agreeing to one more month and then had him put his John Hancock on an electronic signature device. Briones assumed, like most of us would, that he was signing for a month of personal training—even though no contract was displayed on the signature device nor was he given a paper copy to review before signing, he said.

So he was understandably surprised when L.A. Fitness started auto-debiting $110 per month from his bank account. After calling to complain, he checked his email and saw L.A. Fitness had sent a copy of a one-year personal training agreement bearing his electronic signature on the same day he’d signed the device. 

Would you feel like you’d agreed to a one-year contract under these circumstances? Neither did Briones. He ultimately sued L.A. Fitness in federal court on behalf of himself and others like him, alleging the gym’s practices violated seven state and federal laws. L.A. Fitness moved to compel arbitration, pointing to a clause buried in the personal training agreement it emailed Briones.

The Fiction of ‘Knowing’ Consent to Arbitration   

As we’ve detailed here on our blog, arbitration agreements are a powerful weapon companies wield against consumers and employees seeking justice through the court system. Whether you’re joining the gym, turning on cable TV service or starting a new job, chances are you’ll be faced with a take-it-or-leave-it arbitration agreement that says you give up your right to sue the company if it wrongs you.

Like any other contract, an arbitration clause isn’t valid and enforceable unless both sides knowingly consent to it. Since companies often bury fine-print arbitration clauses deep inside voluminous contracts, consumers often don’t even know they’ve agreed to arbitrate at all. Nonetheless, courts routinely enforce a arbitration clauses against consumers who knowingly consented to the underlying agreement containing the arbitration clause.

No Valid Agreement Formed

Still, a defendant seeking to compel arbitration has the burden of proving a valid arbitration agreement exists. Here, the U.S. District Court for the Central District of California held that L.A. Fitness couldn’t meet that burden. It found that Briones did not knowing agree to arbitration because he was neither informed about the arbitration provision nor shown the agreement when he gave his electronic signature.

L.A. Fitness could produce no evidence to prove the salesperson had reviewed the personal training agreement with Briones, show it to him on a screen, or give him a printed copy. Still, it argued that Briones “cannot honestly claim that he did not know” he agreed to arbitrate because it emailed him a copy of the agreement later that day. But the court found no legal authority to back up this argument—and in any event, “the email copies sent after each Agreement provide no indication that Plaintiff, at the time of signing, agreed to arbitrate.”

Moreover, L.A. Fitness argued that Briones should have known about the arbitration clause because, it claimed, there was a sticker on the electronic signature pad that said: “Review Agreement Before Signing; by Electronically Signing You Agree to All of its Terms. You are Entitled to a Copy. If You Do Not Receive One, Call 949-255-7200.” But Briones didn’t have a “direct and immediate opportunity to review the agreement terms” before he signed, nor did the sticker specifically identify any agreement, including the arbitration agreement. Thus, even if the sticker was present, it could not bind Briones “to unseen and unnoticed terms that were never identified with specificity or provided by the device at the time of signing.”   

Implications

“This decision is a victory for consumers,” said Eric Grover of Keller Grover LLP.  “Although nonbinding, this decision makes clear that companies shouldn’t expect to get away with denying consumers their day in court through sharp business practices.” 

The case is Beau Briones v. Fitness International, LLC et al, Case No. SACV 16-44-JLS (KESx) (C.D.Cal. August 5, 2016).

Arbitration provisions are everywhere. If you own a cell phone, use a credit card, or subscribe to cable or satellite TV, odds are very high that your contract with those companies contains an arbitration clause. Your employment agreement may very well have an arbitration clause too. Your car loan? The vacation you just booked with an online travel site? All are likely to have an arbitration clause buried somewhere in the fine print.

According to a three-part series published in The New York Times, corporate America has been luring consumers and employees into signing contracts that require all disputes be resolved through private arbitration. Consumers and employers aren’t given much choice. Companies offer “take it or leave it” contracts with the arbitration provisions buried at the end. And courts, for the most part, say these provisions are legal and enforceable.

But not all courts agree, and not in all situations. In fact, federal courts are increasingly protecting employees’ rights to pursue claims against an employer as part of a class action in court, even if the employment agreement contains an arbitration provision that seeks to prohibit such collective action.

Most recently, a federal court in Los Angeles rejected an employer’s effort to quash an employee’s class action in reliance on a broadly-worded arbitration clause. In Totten vs. Kellog, Brown & Root, LLC, Judge Dolly Gee of the U.S. District Court for the Central District of California ruled that the arbitration provision signed by Totten when he was hired by KBR–to the extent it forced Totten to relinquish class-wide claims challenging KBR’s employee payment practices–violates two federal laws.

KBR hired Totten in January, 2012. As a condition of employment, Totten signed an agreement that contained a mandatory arbitration clause that governed “all legal and equitable claims” relating to his employment. The agreement also stated that neither Totten nor KBR “may pursue any dispute on a class action, collective action or consolidated basis or in any representative capacity on behalf of other persons.” But KBR hedged its bets, and added language that said if a court were to strike down the prohibition on class actions, then an employee’s individual claims would still be subject to mandatory arbitration.

KBR fired Totten in June, 2014. The next month, he filed a class action lawsuit against KBR for multiple violations of the California Labor Code, including failure to pay minimum wages, failure to pay overtime, failure to provide a second meal period, failure to provide wage statements, and failure to pay all wages owed at the time of termination. Totten also included a claim for civil penalties under California’s Private Attorney General Act.

In response, KBR filed a motion to compel Totten to arbitrate his claims and to bar all class-wide claims. KBR pointed to the language of the agreement and the Federal Arbitration Act, which provides that written arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

Totten opposed KBR’s motion. He relied on several decisions of the National Labor Relations Board that held class-action waivers unenforceable under the National Labor Relations Act and the Norris-LaGuardia Act. Section 7 of the NLRA guarantees employees “the right to . . . engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8(a)(1) makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the Act.

The Norris-LaGuardia Act declares that it is the “public policy of the United States” that individual workers be free of “interference, restraint, or coercion” by employers when they engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.

The NLRB noted that the U.S. Supreme Court has held that “employers cannot enter into individual agreements with employees in which the employees cede their statutory rights to act collectively.” Other federal courts have ruled that “concerted activity” as that term is used in the NLRA and the Norris-LaGuardia Act includes collective legal actions, like a class action lawsuit.

The NLRB also dismissed the idea that the Federal Arbitration Act superseded these employee-protection provisions. To the contrary, the NLRB noted that section 2 of the FAA specifically provides that arbitration agreements that contradict federal law are not enforceable. Section 2 states that arbitration agreements are “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Contracts that contravene federal law are revocable.

Judge Gee adopted the NLRB’s approach and rejected decisions of other federal courts that upheld employee class-action waivers under the Federal Arbitration Act. She also rejected arguments by KBR that the U.S. Supreme Court decision in AT&T Wireless vs. Concepcion required her to uphold the class-action waiver.

The Court disagrees, however, that Concepcion applies to this case. Concepcion involved preemption of a state law ruling precluding enforcement of a class arbitration waiver in the consumer context. (citation omitted). The consumers in Concepcion could not have relied upon the NLRA: they did not seek to bring a collective action against their employer seeking to better their workplace conditions. (emphasis added) Although many courts, including this one, have granted motions to compel arbitration in the employment litigation context under the FAA, those cases involved individual employees who were not engaged in concerted activity. (emphasis added)

Judge Gee also held that Totten may pursue his Private Attorney General Claim against KBR as part of the class action in federal court, relying on recent decisions of the California Supreme Court in Iskanian v. CLS Transp. Los Angeles, LLC and of the Ninth Circuit U.S. Court of Appeals in Sakkab v. Luxottica Retail North America, Inc.

In Iskanian, the California Supreme Court ruled that an employment contract that seeks to waive an employee’s right to bring a PAGA claim is unenforceable, because it goes against the public policy of encouraging whistleblowers who disclose violations of the Labor Code. Thereafter, the Ninth Circuit applied Iskanian and held that the Federal Arbitration Act does not overrule California’s public policy. Both courts permitted employees to proceed with class-wide claims under the PAGA despite employment agreements that purported to waive all class actions.

As a result of Judge Gee’s ruling, Totten will go forward with his class action lawsuit against KBR in federal court. Any individual claims he pursues against KBR will be sent to arbitration.

Judge Gee’s decision is detailed and well-reasoned and should, therefore, be persuasive to other federal courts faced with these issues. But the issue is far from settled nationwide.  Federal courts that are generally hostile to employees’ rights will tend to side with employers in these battles and follow the cases that have upheld class-action waivers in employment agreements. This disagreement among the federal courts also makes it more likely that the issue will eventually be presented to the U.S. Supreme Court.

We are experienced and skilled in representing employees in class action litigation against employers. We also have a vibrant practice advising and representing whistleblowers. If your employer has interfered with your rights in any way, please contact us to discuss what you can do about it.