BRYANT v. SERVICE CORPORATION INTERNATIONAL

SUSAN ILLSTON, District Judge

On July 12, 2011, the Court granted plaintiffs Biernacki, Farmer, and Holland's motion to compel arbitration and dismissed their claims without prejudice. See Doc. 380. The Court also dismissed the claims of the remaining plaintiffs in the suit and entered judgment accordingly on July 14. See Doc. 381. On August 11, defendants filed a timely motion to alter or amend the judgment pursuant to Rule 59(e) of the Federal Rules of Civil Procedure. Defendants' motion is currently scheduled for hearing on September 22, 2011. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument and hereby VACATES the hearing. Having considered the papers submitted, and for good cause shown, the Court hereby GRANTS defendants' motion.

In opposing plaintiffs' motion to compel arbitration, defendants argued that plaintiffs Biernacki, Farmer, and Holland had waived their right to compel arbitration. Defendants argued that plaintiffs' conduct met all three prongs of the Ninth Circuit's waiver test, which is laid out in Fisher v. A. G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986) and Hoffman Const. Co. of Oregon v. Active Erectors and Installers, Inc., 969 F.2d 796, 798 (9th Cir. 1992) (quoting Fisher). See Def. Oppo. to Pl. Mot. to Compel Arbitration (Doc. 363), at 16-17. Neither party addressed the question of whether the recent U.S. Supreme Court decision in AT T v. Concepcion, 131 S. Ct. 1740 (2011), which overruled the California Supreme Court case Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), should have any bearing on the outcome of the motion.

The Court agreed that the Fisher test applied, but determined that plaintiffs had not waived their right to compel arbitration under the test. The Court explained its reasoning as follows:

The arbitration agreement that plaintiffs are seeking to enforce in this case appears not to permit class action arbitration, and therefore until recently would not have been enforceable according to its terms. Defendants do not cite Concepcion in their papers or explain how it is that plaintiffs acted inconsistently with a known right by not moving to compel arbitration before the decision in Concepcion. They have failed to meet their "heavy burden" to prove waiver. Fisher, 791 F.2d at 694.

Doc. 380 at 8.

In their Rule 59(e) motion, defendants argue that the Court made a manifest error of law. See Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1111 (9th Cir. 2011) (explaining the possible grounds for granting a Rule 59(e) motion). They argue that while defendants could not have enforced the arbitration agreements as written before Concepcion, plaintiffs could have. Therefore, by litigating their claims for three years, plaintiffs acted inconsistently with a known right, and defendants were prejudiced by plaintiffs' actions.

Plaintiffs oppose the motion. Plaintiffs argue that "prior to Concepcion, arbitration agreements that d[id] not permit class arbitration [we]re unenforceable" and "[r]egardless of which party sought to compel arbitration, the law would have applied equally to invalidate the arbitration agreement because it did not permit class arbitration." Pl. Oppo. at 2, 7. Finally, they argue that even if defendants are correct legally, they have not carried their burden to prove waiver factually.

Prior to Concepcion, defendants in certain types of actions could not enforce as written arbitration agreements that did not permit class arbitration. The arbitration agreement itself would remain enforceable, however, unless the agreement itself prohibited the severing of the unconscionable term, or if the arbitration agreement had an "insidious pattern" of unconscionable terms. See, e.g., Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976, 986-87 (9th Cir. 2007) (voiding agreement where it contained "a nonseverability clause, which states that if the `specific proviso' that `the arbitrator may not . . . preside over any form of a representative or class proceeding,' `is found to be unenforceable, then the entirety of this arbitration clause shall be null and void'" (omission in Shroyer) (emphasis removed)), overruled by AT T v. Concepcion, 131 S.Ct. 1740 (2011); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1180 (9th Cir. 2003) (citing seven "unconscionable aspects" of the arbitration agreement to explain why the court was "compelled to find the entire contract unenforceable"), overruled in part by AT T v. Concepcion, 131 S.Ct. 1740 (2011). There is no such non-severance clause in plaintiffs' arbitration provision, and plaintiffs have not argued that there is an "insidious pattern" in this case.

The Discover Bank rule evolved out of California's laws regarding unconscionability. The rule only applied where the arbitration provision was "imposed and drafted by the party of superior bargaining strength." 36 Cal. 4th at 160. Thus, it protected the party of lesser bargaining strength: the plaintiff/consumer. The Discover Bank Court based its decision in part on the fact that it was "difficult to envision the circumstances under which the provision might negatively impact" the defendant-drafter of the provision. See 36 Cal. 4th at 161. The California Supreme Court announced a similar RULE IN the area of employment law in Gentry v. Superior Court, 42 Cal. 4th 443 (2007). The Supreme Court explained that "under some circumstances such a provision would lead to a de facto waiver [of unwaivable statutory rights] and would impermissibly interfere with employees' ability to vindicate unwaivable rights and to enforce the overtime laws." Id. at 457.

It is not at all clear that a defendant — the party of the greater bargaining strength — could have utilized the protections afforded by Discover Bank and Genrty to compel one or more individual plaintiffs to arbitrate their claims as a class. Plaintiffs have not cited, and the Court is not aware of, any case where a defendant attempted to do so. Nor, as a practical matter, is it easy to envision a situation in which a defendant would wish to do so or could try to do so.

The cases cited by plaintiffs in opposition to defendants' motion involve defendants moving to compel arbitration. See, e.g., Swift v. Zynga Game Network, Inc., ___ F. Supp. 2d ___, 2011 WL 3419499 (N.D. Cal. 2011) (defendant's motion); In re Cal. Title Ins. Antitrust Litig., No. 08-01341, 2011 WL 2566449, at *3 (N.D. Cal. June 27, 2011) (defendants' motion); Villegas v. US Bancorp, No. C 10-1762 RS, 2011 WL 2679610, (N.D. Cal. June 20, 2011) (defendants' motion); Estrella v. Freedom Fin., No. C. 09-03156, 2011 WL 2633643 (N.D. Cal. July 5, 2011) (defendants' motion). Plaintiffs have not successfully explained how those cases can be analogized to this case, where it is plaintiffs who are moving to compel arbitration, and where it appears that plaintiffs could have arbitrated their claims on an individual basis when they filed suit in 2008.

Defendants successfully met their burden to show that plaintiffs acted inconsistently with a known right when they litigated this case for over three years: filing this case in federal court, filing an amended complaint, undertaking considerable discovery including filing a motion to compel, and filing a motion for class certification. Defendants have also successfully met their burden to show that they were prejudiced by the time and expense of litigating this case for the past three years.

For the foregoing reasons, and for good cause shown, the Court hereby GRANTS defendants' motion and WITHDRAWS the Judgment entered in this case on July 14, 2011. (Doc. 385.) Additionally, the Court AMENDS its Order of July 12, 2011 as follows:

The Court previously granted defendants' motion to sever the claims of plaintiffs Stickle, Riggio, Acuna, Lamasters, Allen, Fulcher, Levine, and Thompson, and dismissed them "`without prejudice to the institution of new, separate lawsuits by the dropped plaintiffs against some or all of the present defendants based on the claim or claims attempted to be set forth in the present complaint.'" Order (Doc. 380) at 5 (quoting Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir. 1997) (internal quotation marks omitted)). For the reasons stated in the July 12 Order, that part of the Order remains unchanged.

The Court previously denied defendants' motion to sever the claims of plaintiffs Biernacki, Farmer, and Holland, finding that the permissive joinder test was satisfied. For the reasons stated in the July 12 Order, that part of the Order remains unchanged.

The Court previously found that plaintiffs Biernacki, Farmer, and Holland had carried their burden to establish the existence of enforceable arbitration agreements. For the reasons stated in the July 12 Order, that part of the Order remains unchanged.

The Court previously found that plaintiffs Biernacki, Farmer, and Holland had not waived their right to arbitration and granted in part plaintiffs' motion to compel arbitration. For the above reasons, the Court AMENDS its Order, finds that plaintiffs Biernacki, Farmer, and Holland did waive their right to arbitration, and DENIES their motion to compel arbitration.

Finally, in the July 12 Order, the Court GRANTED plaintiff Bryant's unopposed request for his claims to be dismissed with prejudice. Because the request was made in order to permit the Court to enter judgment in this case, so that plaintiff Bryant might appeal the Court's denial of class certification, the Court AMENDS its Order and DENIES plaintiff Bryant's request for his claims to be dismissed at this point.

Plaintiffs Bryant, Biernacki, Farmer, and Holland are hereby ORDERED to file a statement to the Court by 5:00 p.m. on Friday, September 16, 2011, informing the Court whether plaintiffs wish to pursue their claims individually, or whether they would like their claims to be dismissed with prejudice in order to facilitate appeal.

Because the judgment in this case has been withdrawn, plaintiffs' objections to defendants' bill of costs is OVERRULED without prejudice. (Doc. 383.)