If You Can’t Beat ‘Em, Join ‘Em

In a development as incongruously surprising as Lady Gaga becoming President, the Ninth Circuit has enforced a class action waiver.  Richards v. Ernst & Young, Case No. 17530 (August 21, 2013).  On its own, that may only have been as shocking as, say, Ralph Nader taking the Oval Office.  But, in a unanimous decision, the Ninth Circuit enforced the class action waiver despite an quasi-arguable basis for rejecting it, and went out of its way to criticize the NLRB’s holding that such waivers violate the National Labor Relations Act (D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012)).  In the immortal words of Clark W. Griswold, “Eddie, I wouldn’t be more surprised if I woke up tomorrow with my head sewn to the carpet.”

The employer in Richards filed its motion to compel arbitration after discovery, and following the district court’s dismissal of two of the plaintiff’s claims.  The plaintiff argued that the defendant’s participation to that point in the litigation was a waiver of its right to seek arbitration.  She furthermore insisted that she had been prejudiced by the employer’s delay because she had incurred discovery expenses and had two of her claims dismissed by the district court.  (So, she was prejudiced by the defendant’s attempt to remove the case from a decision-maker that rejected two of her claims outright?  Well, that’s….interesting).  The district court denied the employer’s motion on the basis that it was a day late and a dollar short (although in slightly more professional terms).

The Ninth Circuit, the unchallenged Champion of Employer Rights, disagreed.  The appellate court began its analysis by noting that waiver of a right to seek arbitration is disfavored, and the party asserting such a waiver bears a “heavy burden.”  (Oh, by the way, the court had to reach back 27 years to cite Ninth Circuit precedent in support of that point.)  In regard to our friend Ms. Richards, the Ninth Circuit held that the two claims the district court dismissed were not resolved on their merits, and therefore did not support a finding of waiver.  The court similarly rejected the plaintiff’s effort to show prejudice based on the discovery expenses she incurred, holding that her “deliberate choice of an improper forum, in contravention of [her] contract, cannot be charged to” her employer.  (We agree wholeheartedly with this point, but coming from the Ninth Circuit?  Wow.  Just…wow.)

But, like a commercial for Ginsu Knives or the Amazing Reusable Ruggy, there’s more!

The plaintiff, on appeal, also argued that the class waiver she signed violated the National Labor Relations Act, as recognized by the NLRB in D.R. Horton.  Because the plaintiff had not raised that argument before the district court, the Ninth Circuit rejected it.  Nonetheless, the court still proceeded (albeit in a footnote) to demolish the Board’s reasoning and recount the “overwhelming majority” of courts that have rejected D.R. Horton.  

The Bottom Line:  The Ninth Circuit may have turned the corner on class action waivers, and might be ready to join the Second and Eighth Circuits in rejecting D.R. Horton.