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August 2020 Advance Sheet

8/13/2020

 
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June 2020 Advance Sheet

6/29/2020

 
June 2020 Advance Sheet
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June 2020 Litigation Report

6/8/2020

 
June 2020 Litigation Report
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May 2020 Advance Sheet

6/2/2020

 
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March-April 2020 Advance Sheet

6/2/2020

 
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October 2019 Litigation Report

1/8/2020

 
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June 2019 Litigation Report

6/19/2019

 
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May 2019 Advance sheet

4/29/2019

 

                                      Lamps Plus v. Varela

In A Victory For NELF And Its Supporters, The United States Supreme Court Holds That Mere Ambiguity In An Arbitration Agreement Does Not Satisfy The Federal Arbitration Act’s Requirement That Parties Must Consent To Class Arbitration.
 
   Lamps Plus, Inc. v. Varela (United States Supreme Court)
 
At issue in this case was whether the Federal Arbitration Act (FAA) permits a court to order class arbitration when the parties’ agreement makes no express mention of class arbitration, but the court concludes nonetheless that certain contractual language is ambiguous and could be interpreted to support class arbitration.  Nearly a decade ago, in Stolt-Nielsen S.A. v. AnimalFeeds Internat’l Corp., 559 U.S. 662, 684  (2010), the Supreme Court held that, because class arbitration is so inimical to the individual arbitration contemplated by the FAA, “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” (Emphasis in original).  In that case, however, the Court did not have to explain what constitutes a “contractual basis” authorizing class arbitration because the parties had stipulated that there was none.  (Not only was their agreement silent on the issue, but the parties in Stolt-Nielsen also made the unusual stipulation before the arbitral panel that this silence meant that they had not agreed to class arbitration.)  Faced in this case with an arbitration agreement that was purportedly ambiguous on the issue of class arbitration, the Court had to decide whether contractual ambiguity alone could  provide the necessary contractual basis authorizing class arbitration under Stolt-Nielsen and the FAA.
 
Lamps Plus and one of its employees, Frank Varela, executed the company’s standard arbitration agreement, in which the two parties (“I” and “the company”) agreed to “resolve[,] by final and binding arbitration as the exclusive remedy,” “all disputes, claims or controversies arising out of or relating to this Agreement, the employment relationship between the parties, or the termination of the employment relationship . . . .”  The agreement also provided Varela with express notice that, by agreeing to arbitrate all employment-related disputes, he was thereby waiving his right to sue in court and obtain a jury trial for those claims.  (E.g., “I agree that arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.” (emphasis added.)). The agreement further provided Varela with detailed notice of the kinds of employment-related claims that he was agreeing to arbitrate with his employer.
 
Notwithstanding the parties’ arbitration agreement, Varela filed a class action complaint in federal court for the Central District of California, alleging that Lamps Plus, through one of its employees, had wrongfully disclosed personal identifying information of its employees, in a mistaken response to a phishing scam requesting such information.  Lamps Plus moved to compel arbitration on an individual basis.  The district court ordered arbitration, but on a classwide basis.  The Ninth Circuit affirmed, crediting Varela’s argument that there was contractual language (namely, “lawsuits or other civil legal proceedings,” quoted above) that could be interpreted to include class arbitration.  (Needless to say, Lamps Plus argued strenuously that the agreement contemplated individual arbitration only.)  The Ninth Circuit resolved this purported ambiguity by construing it against the drafter, Lamps Plus, under California contract law.  Accordingly, the lower court held that the parties had consented to class arbitration.
 
NELF filed an amicus brief supporting Lamps Plus’s position, arguing that, in fact, the parties’ standard arbitration agreement provided no contractual basis supporting class arbitration.  NELF argued that the agreement unambiguously provided for individual arbitration only.  It was a simple contract between two parties to arbitrate their disputes, and nothing more.  Not only was the agreement dead silent on the issue of class arbitration, but also, NELF argued, none of its boilerplate language could reasonably be interpreted to permit class arbitration.  In particular, NELF argued that the language purportedly authorizing class arbitration (“lawsuits or other civil legal proceedings”) added nothing new to the agreement.  That language merely explained to the employee what it meant to agree, in the first sentence of the agreement, to submit all employment disputes with his employer to binding and final arbitration.
 
In a 5-4 decision issued on April 24, 2019, the Court agreed with NELF that the arbitration agreement at issue did not authorize class arbitration, but for different reasons.  Surprisingly in NELF’s view, the Court, in a majority opinion by Chief Justice Roberts, deferred to the Ninth Circuit’s conclusion that the agreement was ambiguous on the issue of class arbitration, as a matter of California contract law (identifying such deference to state law as the Court’s “normal practice”).  In NELF’s view, however, the entire question of whether an arbitration agreement supplies a contractual basis for class arbitration is a matter of federal law under the FAA.  Even though the Court did defer to state law on that issue, the Court nonetheless went on to hold that this purported ambiguity made no difference under federal law, because neither contractual silence nor contractual ambiguity is sufficient to authorize class arbitration under the FAA.  “Like silence,” the Court explained, “ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage[s] of [individual] arbitration” contemplated by the FAA, namely, “its speed and simplicity and inexpensiveness.” (Citation and internal punctuation marks omitted).  In short, a court may not presume that a party has consented to the costly, burdensome and virtually unreviewable procedure of class arbitration, based on merely ambiguous contract language.
 
Importantly, the Court also held that the FAA preempted the lower court’s attempt to resolve the purported contractual ambiguity on class arbitration by applying the general rule of state contract law that construes an ambiguity against the drafter.  As the Court explained, that rule resolves a contractual ambiguity as a matter of public policy, based on considerations of relative bargaining strength.  It does not address in any way what the parties actually agreed to.  The FAA, however, requires the parties’ consent to class arbitration.  Therefore, the application of that general rule of state contract law to resolve the purported ambiguity would have impermissibly imposed class arbitration without the parties’ consent.  This the FAA does not permit
 
While the Court did hold that neither silence nor ambiguity is enough to satisfy the FAA, the Court never did state affirmatively what contractual language is required to warrant class arbitration under the FAA.  At the very least, such language would have to be unambiguous, but most likely it would have to be clear and unmistakable, given the high stakes involved in submitting to class arbitration.  Notably, the Court relied for support on an analogous area of its FAA jurisprudence, in which the Court requires “clear and unmistakable” contract language to overcome the presumption that certain “gateway” issues of arbitrability (such as the validity and scope of the agreement) should be decided by a court, not an arbitrator.  Just as the Court will not presume that parties who have agreed to arbitrate have also agreed to class arbitration:
    "[W]e presume [in our related FAA cases] that parties [to an arbitration agreement] have not authorized arbitrators to resolve certain “gateway” questions . . . . Although parties are free to authorize arbitrators to resolve such questions [or to conduct a class proceeding], we will not conclude that they have done so based on “silence or ambiguity” in their agreement . . . . Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself." ​

April Advance Sheet

4/24/2019

 

                                 Gammella v. P. F. Chang                                    

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​In a major victory for NELF and its supporters, the Massachusetts Supreme Judicial agreed with NELF that an employee bringing a class action under the Massachusetts Wage Act must satisfy the requirements of Mass. R. Civ. P. 23, even though the Wage Act independently provides that an employee may sue “on his own behalf, or for himself and for others similarly situated.”
 
Gammella v. P. F. Chang’s Chinese Bistro, Inc. (Massachusetts Judicial Supreme Court)
 
This case raised the important question whether the Massachusetts Wage Act, which provides that an employee may sue “on his own behalf, or for himself and for others similarly situated,”  M. G. L. c. 149, § 150, permitted employees to pursue a class action without satisfying the class action requirements of Rule 23 of the Massachusetts Rules of Civil Procedure.  Rule 23governs all class actions in the Massachusetts courts, unless the Legislature expressly provides otherwise.  In this connection, the plaintiff here argued that the Wage Act’s “similarly situated” language indicated such a legislative intent, because the Legislature added that language to the Wage Act in 1993 when it created a private remedy, even though Mass. R. Civ. P. 23 (adopted in 1973) already existed. 
 
NELF submitted an amicus brief in support of the employer, urging the SJC to reject the plaintiff’s argument and affirm—as the Court already had done by implication in at least one decision—that Rule 23’s requirements must apply to a motion for class certification under the Wage Act. 
 
In a unanimous decision issued on April 12, 2019, the SJC agreed with NELF and held that Rule 23 governs class actions brought under the Massachusetts Wage Act. As NELF had argued, the Court held that, far from announcing a different standard for class certification, the statute’s “similarly situated” language merely clarified that, for the first time in the Wage Act’s history, employees had the private right to pursue both individual and class claims under that statute.  (Indeed, as NELF also had pointed out in its brief, and as the Court had noted in prior decisions, the Wage Act was an exclusively criminal statute until the 1993 amendment.)
 
As NELF had also argued, the Court explained that, when the Legislature has intended to depart from the general court rules governing civil actions, it has done so expressly, and in some detail.  Notably, when G. L. c. 93A, § 9, was amended in 1969 to provide a private remedy for both individual and class claims, the Legislature provided, in a separate paragraph, the specific class certification requirements for a consumer wishing to pursue a c. 93A claim on behalf of “numerous other persons similarly situated.”  Those requirements, drafted before Massachusetts had adopted the rules of civil procedure, incorporated Fed. R. Civ. P. 23(a), but not Fed. R. Civ. P. 23(b)(3) (predominance and superiority).  No such detailed and selective language occurs in the Wage Act.
 
Finally, the Court agreed with NELF that “it is clear from our previous application of rule 23 to class actions brought under the wage laws in Salvas v. Wal-Mart Stores, Inc., 452 Mass. 337, 371-372 (2008), that rule 23 has the necessary structure and adaptability to advance the very legitimate policy rationales underlying the Legislature’s decision to provide for class proceedings under the Wage Act.”  Indeed, the Court and NELF quoted the same language from Salvas praising the efficacy of Rule 23 for Wage Act claims: “One of the great strengths of the rule 23 class action device is its plasticity.  Case-by-case considerations of practicality and fairness have enabled rule 23 certification decisions to adapt appropriately to a variety of contexts, even within the same litigation.”  Salvas, 452 Mass. at 371.
 
Ironically, after agreeing with NELF that Rule 23 applies to the Wage Act, the Court concluded that the plaintiff had satisfied Rule 23’s requirements for class certification, contrary to the lower court’s ruling.  Therefore, the Court reversed the lower court’s denial of class certification.  Nonetheless, the decision is a victory for employers because the Court rejected the plaintiff’s effort to provide an essentially “free form” class action procedure under the Wage Act.

March Advance Sheet

4/24/2019

 
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                                                       NEW ENGLAND LEGAL FOUNDATION
 
                                                                           ADVANCE SHEET
 
                                                                                March 2019
 
 
The Massachusetts Supreme Judicial Court Agreed With NELF That An Award of “Back Pay” Under the Worker Adjustment and Relocation Notification Act, 20 U.S.C. § 2101 et al., Due To An Employer’s  Failure To Give Employees 60 Days’ Notice Before Closing Operations, Does Not Constitute “Wages Earned” and, therefore, is not recoverable Under the Massachusetts Wage Act
 
Calixto and another v. Coughlin, et al. (Massachusetts Supreme Judicial Court)
 
At issue in this case was an unsatisfied judgment of approximately $2 million in back pay that a class of plaintiffs had obtained in federal court against their former employer for violating the notice requirement of the federal WARN Act before shutting down.  Unable to recover the judgment from their now-defunct employer, the plaintiffs sued their employer’s former executive officers personally for treble that amount under the Massachusetts Wage Act.  NELF filed an amicus brief in support of the defendants, arguing principally that the plaintiffs could not recover under the Wage Act because, simply put, an award of “back pay” under the WARN Act does not compensate employees for “wages earned.”  As NELF pointed out, back pay is a traditional remedy to compensate an employee for the wages the employee would have earned if the employer had not violated the law, here by failing to provide the employee with 60 days’ notice.  Because, however, the Wage Act permits recovery only of the wages that an employee has actually earned, NELF argued that the Court should affirm the Superior Court’s dismissal of the plaintiffs’ complaint.   In its brief, NELF also argued that a decision equating “back pay” under the WARN Act with “wages earned” under the Wage Act would eviscerate the WARN Act’s “faltering company” defense.  Under that defense, a financially troubled company can avoid liability by showing that it was “actively seeking capital or business” to salvage the company and the company believed, “reasonably and in good faith,” that giving timely notice of a plant closing would have jeopardized those business opportunities.  NELF also noted that allowing the plaintiffs to sue their employer’s former executives was inconsistent with the WARN Act, which does not impose personal liability on a company’s officers.  NELF argued that this was arguably a deliberate choice by Congress to allow executive officers to exercise their business judgment and take the necessary steps to protect a financially troubled company and its workforce, without having to fear incurring personal liability for their efforts. 
 
In a major victory for Massachusetts employers, the SJC agreed with NELF, and held that an award of back pay under the WARN Act is not for “wages earned” and, therefore, the plaintiffs had not valid cause of action under the Wage Act.
 
 
The United States Supreme Court Agreed With NELF That The Federal Arbitration Act Does Not Permit A Court To Disregard The Parties’ Agreement To Delegate Threshold Disputes Over Arbitrability To The Arbitrator, Even If the Court Thinks That Such A Dispute Is “Wholly Groundless.”
 
Henry Schein, Inc. et al. v. Archer and White Sales, Inc. (United States Supreme Court)
 
The parties in this case had a pre-dispute arbitration agreement, which stated that “[a]ny dispute arising under or related to this Agreement (except for actions seeking injunctive relief . . . .) shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [ (AAA) ].”  AAA Rule 7(a), in turn, provides that “the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” (Emphasis added.)  Notwishtanding this agreement, Archer and White Sales, Inc. sued Henry Schein, Inc. in federal court under the anti-trust laws, seeking both damages and injunctive relief.  Predictably, Schein moved to compel arbitration under the parties’ agreement, to which Archer responded on the ground that because its complaint sought injunctive relief, as well as damages, it was not arbitrable.   Despite the clear language of the arbitration provision and the AAA rules, the Fifth Circuit refused to compel arbitration over the question of arbitrability. The Court took the position that, even assuming the agreement did clearly and unmistakably delegate the arbitrabiity issue to the arbitrator, the court nonetheless had the discretion to decline to enforce the agreement if it concluded that the dispute was “wholly groundless.”  The court so concluded and refused to enforce the arbitration agreement on that basis, allowing Archer to proceed with its antitrust claims in federal court. 
 
NELF filed an amicus brief in support of Schein, arguing that, where the parties have so provided, the FAA requires a court to enforce a valid agreement to arbitrate threshold disputes concerning the arbitrability of claims.  NELF argued that the FAA simply does not permit a court to usurp the arbitrator’s contractually delegated power to decide threshold questions of arbitrability, such as under the Fifth Circuit’s “wholly groundless” standard. 
 
In another major victory for NELF, the Supreme Court agreed unanimously that the Federal Arbitration Act requires a court to enforce the parties’ agreement to delegate to the arbitrator any threshold dispute over arbitrability, here the scope of the arbitration agreement.  Thus the Court forcefully reaffirmed the well-established principles that, while questions of arbitrability presumptively belong in court, parties may nonetheless assign those preliminary questions to the arbitrator, “so long as the delegation is clear and unmistakable.”  Id., 561 U.S. at 79. And, the Court affirmed, the parties decision in this regard must be enforced.
 
 
however, In another important arbitration decision, the Supreme Court disagreed with nelf and held that the Federal Arbitration Act’s exemption for “contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce” exempts not only employees, but also independent contractors in those areas from the FAA.
 
New Prime, Inc. v. Oliveira (United States Supreme Court)
 
In a unanimous decision issued January 15, 2019, the Supreme Court rejected NELF’s position in this case and concluded that the Federal Arbitration Act exempts all transportation worker contracts, whether they establish an employee-employee or independent contractor relationship.
 
The FAA exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  9 U.S.C. § 1 (emphasis added).  At issue was the meaning of “contracts of employment.”  (In Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the Court had held that the exemption applied only to interstate transportation workers, not to all workers generally.  In that case, however, the Court was not asked to interpret the “contract of employment” language that is now in dispute.)  This case mattered to NELF and its supporters because a broad interpretation of “contracts of employment” would mean that no interstate transportation carrier could ever enforce its arbitration agreements and class action waivers against any of its contract workforce under the FAA, be they employees or independent contractors.
 
The First Circuit in this case concluded that the term “contract of employment” was sufficiently broad at the time of the FAA’s enactment, in 1925, to embrace any contract to perform work, regardless of the legal status of the worker.  And the Supreme Court essentially agreed, reinforcing its general rule that statutory language should be interpreted in its historical context, to give full effect to congressional intent.    Accordingly, bothe courts held held that the FAA exempts the Independent Contractor Operating Agreement that the plaintiff, truck driver Dominic Oliveira, had signed with New Prime, Inc. (“Prime”), the operator of an interstate trucking company.  That agreement specified the terms of Oliveira’s independent contractor relationship with Prime.  It also required Oliveira to arbitrate all work-related disputes on an individual basis. 
 
In its amicus brief, NELF had argued that the phrase “contracts of employment” should be interpreted in its immediate context, under the rule of noscitur a sociis (“it is known from its associates”).  The phrase modifies “seamen” and “railroad employees,” two prominent classes of transportation employees.  This indicated, NELF argued, that “contracts of employment” must establish an employer-employee relationship.  This meaning is confirmed by applying the related rule of ejusdem generis (“of the same kind”), to the residual phrase “any other class of workers,” which immediately follows seamen and railroad employees in the exemption.  In Circuit City, the Court applied ejusdem generis to narrow the meaning of that residual phrase “any other class of workers” to other transportation workers only, because the phrase followed specific examples of transportation workers.  Here, application of ejusdem generis takes the analysis one step further, by limiting the same residual phrase to other transportation workers who are employees, because seamen and railway employees are specific examples of transportation workers who are employees.  These rules of statutory construction serve the overarching purpose of the FAA.  The exemption is embedded in a statute whose purpose is to ensure the judicial enforcement of arbitration agreements according to their terms.  This broad statutory purpose counsels in favor of enforcing, not exempting, arbitration agreements under the FAA.
 
In its brief, NELF also offered a plausible historical explanation for this exemption.  The FAA’s exemption for the employment contracts of seamen and railroad employees was apparently intended to leave undisturbed those employees’ statutory right, under the Jones Act and the Federal Employers’ Liability Act (FELA), respectively, to sue their employer in court for work-related injuries.  The FELA and the Jones Act granted those transportation employees a liberalized tort remedy, due to their particularly hazardous working conditions and the inadequacy of state tort law to compensate them for their injuries.  Since independent contractors are not covered by the FELA or the Jones Act, Congress would have had no reason to exempt them from the FAA’s scope.
 
The Court essentially rejected those arguments.  First, the Court concluded that seamen and railroad employees apparently included all kinds of workers under those and other related federal statutes and regulatory decisions when the FAA was enacted in 1925.  The Court also noted that Congress chose the word “worker” in the catch-all phrase “any other class of workers,” as opposed to “employees” or “servants.”  As the Court explained:  “That word choice may not mean everything, but it does supply further evidence still that Congress used the term ‘contracts of employment’ in a broad sense to capture any contract for the performance of work by workers.” 

February 2019 Litigation Report

4/17/2019

 
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October 2018 Litigation Report

10/17/2018

 
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June 2018 Litigation Report

6/14/2018

 
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February 2018 Litigation Report

2/16/2018

 
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October 2017 Litigation Report - Recent Decisions

10/17/2017

 
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