U.S. Supreme Court to Decide Circuit Split: Are Class Action Waivers in Employment Arbitration Agreements Enforceable?

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On Friday, the United States Supreme Court granted three petitions for certiorari to determine a quickly developing circuit split. The question before the Court is whether the National Labor Relations Board is correct in its interpretation that class action waiver provisions in certain employment arbitration agreements are illegal under federal labor law. Since 2011, when the U.S. Supreme Court permitted such waivers in AT&T Mobility LLC v. Concepcion, employers have relied upon them to require that disputes be resolved through individual arbitration. The NLRB over the past few years has issued numerous decisions invalidating arbitration agreements because they contained class and collection action waivers. The NLRB has stood its ground and routinely stated that such waivers violate employees’ rights under the National Labor Relations Act and are unenforceable.

The U.S. Supreme Court has agreed to hear three cases. Each involves the question whether the NLRA prohibits employers from requiring the non-management employees covered by the NLRA (employees not defined as “supervisors”) to arbitrate their work-related claims individually rather than as a class. The three cases come from the Fifth, Seventh, and Ninth Circuits.

The Fifth Circuit, in Murphy Oil USA, Inc.v. NLRB, overturned the NLRB’s decision that Murphy Oil had unlawfully required employees at its Alabama facility to sign an arbitration agreement waiving their right to pursue class and collective actions. The Fifth Circuit held that the pro-arbitration policy of the Federal Arbitration Act overrides federal labor law interests and requires enforcement of the class waivers. On the other side of the circuit split, the Seventh and Ninth Circuits have held that corporations cannot require employees to give up their rights to pursue work-related claims on a class-wide basis. The U.S. Supreme Court will review Lewis v. Epic Systems Corp., a case in which the Seventh Circuit held that an arbitration agreement precluding collective arbitration or collective actions violates federal labor law and is unenforceable under the Federal Arbitration Act. The Court will also hear Morris v. Ernst & Young, a decision from the Ninth Circuit invalidating Ernst & Young’s mandatory arbitration agreement because it required employees to bring all claims in arbitration and limited such claims to those brought on an individual basis. These decisions put the Seventh and Ninth Circuit squarely at odds with the Second, Fifth, Eighth, and Eleventh Circuit, with more yet to weigh in.

The Fourth Circuit has not addressed this issue yet, although it has held that the availability of class arbitration under the terms of the arbitration agreement is a question for the Court, not the arbitrator, to decide, as we discussed last March. North Carolina courts have not addressed the NLRA waiver issue, nor are they likely to have the opportunity, although the Court of Appeals did follow the U.S. Supreme Court in holding that contractual waivers of class proceedings in arbitration agreements are permitted in North Carolina.

Stay tuned for further developments from the U.S. Supreme Court.

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NC Supreme Court Affirms Certification of 800,000 Member Class (Fisher Part 2)

View Adam Doerr's Complete Bio at robinsonbradshaw.com
As we explained in Part 1 of our analysis of Fisher v. Flue-Cured Tobacco Cooperative Stabilization Corporation, the North Carolina Supreme Court recently exercised jurisdiction over an interlocutory appeal and affirmed the certification of a class of hundreds of thousands of current and former tobacco farmers. In the first part, we discussed the Court’s jurisdictional analysis and North Carolina’s unique approach to interlocutory appeals of class certification orders. In this post, we discuss the Court’s substantive analysis of the class certification issues.

The Cooperative’s first challenge to class certification involved the argument that plaintiffs’ claims were derivative. The Cooperative argued that, like a North Carolina corporation, it was entitled to receive a written demand from members to take suitable action before filing suit. The Court declined to decide this question, holding that the derivative demand requirement in section 55-7-42 of the General Statues did not address class certification. The Court also noted that Rule 23 and the Court’s precedent did not require the trial court to consider whether class claims are derivative. The Court explicitly stated that it “express[ed] no opinion” on the derivative issues and noted that the Cooperative could make this argument via a motion to dismiss. Under the Court’s analysis, derivative and class certification issues are distinct, at least under the somewhat unique circumstances of this case.

The Court then turned to the core Rule 23 issues of commonality and manageability. Citing Crow v. Citicorp Acceptance Co., 319 N.C. 274 (1987), which apparently retains its status as one of the leading North Carolina decisions on Rule 23, the Court noted the requirement that there be no conflict of interest between the class representative and the unnamed class members. The Cooperative had argued that one of the named Plaintiffs was a member of the Cooperative’s board of directors, a conflict of interest that should have precluded class certification. The Court disagreed, noting that the plaintiffs had not alleged that individual members of the board had engaged in misconduct, and that none of the directors was named as an individual defendant. Accordingly, the Court held, the trial court did not abuse its discretion in certifying the class.

Interestingly, the Court implies that it would have affirmed the trial court had it reached the opposite conclusion:

Although a trial court might review a class representative’s other activities and find that these activities create a conflict of interest with class members, here the trial court exercised its discretion and determined that Renegar is capable of representing the interests of class members.

The fact that a hypothetical trial court might have found that this conflict of interest prevented certification serves as an important reminder of the demanding standard of review for class certification decisions. This statement also illustrates how opinions like Fisher have important limitations as precedent at the trial level. Litigants in future cases won’t be able to cite Fisher as stating a general rule that directors can serve as class representatives in a case challenging decisions in which they participated. Rather, future plaintiffs will only be able to say that, under the circumstances of this case, it was not an abuse of discretion to certify a class despite the fact that a director was named as a class representative. Of course, their opponents would be equally justified in noting, based on the language quoted above, that a denial of certification on this basis would probably have been affirmed in similar fashion.

Next, the Court turned to the Cooperative’s claims that other conflicts of interest among members of the class precluded certification. These alleged conflicts included that (1) some class members still participated in the cooperative and others did not, (2) some class members were involved in a federal case where they claimed their interests were not being represented in the Fisher action, and (3) certain class members who sold tobacco during years where the Cooperative had positive revenues had claims that other class members lacked. The Court did not engage these questions in any detail, and it did not address the federal lawsuit at all. Instead, it emphasized that the “trial court may be in the best position to determine whether any conflicts among class members warrant denial of class certification,” and that the trial court had “considered defendant’s arguments and rejected them.” Again, the abuse of discretion standard played a central role in the Court’s analysis.

The Court then turned questions of commonality and manageability. Citing its 2014 decision in Beroth Oil Co. v. NC DOT, 367 N.C. 333 (2014), the Court noted that Beroth involved a “discrete fact-specific inquiry” for members of the class, as we discussed in our analysis of the case. Here, the Court noted, the “trial court identified many issues of law and fact that are common to the class.” And, as with its discussion of conflicts of interest, the Court implied that it may well have affirmed the opposite conclusion, noting that “the trial court exercised its broad discretion to allow, rather than deny, class certification.”

Finally, the Court affirmed the trial court’s manageability finding, noting the “extremely large number of similarly situated class members and the impracticality of requiring them to protect their rights through filing hundreds of thousands of individual lawsuits.” The Court did not address whether the individual class members would actually have pursued such claims, given the fact that many of them may not have farmed tobacco for decades or had a claim to any reserves, nor did it address the Cooperative’s argument that the size of the class and lengthy class period would make the class action unmanageable. Once again, it deferred to the trial court, noting that it could not conclude that the trial court abused its discretion by ruling that a class action was superior to individual litigation.

Although Fisher generally follows existing precedent in Crow and Beroth, it provides an important demonstration of this Supreme Court’s willingness to defer to trial courts on class certification. We’ll be watching to see if that holds in future cases as the Court changes, and we’ll also monitor whether North Carolina appellate courts will begin to take a more permissive approach towards interlocutory review of orders granting class certification more generally. As for Fisher itself, the case has been remanded to the trial court for further proceedings, although it’s unclear where that will be, given that Judge Jolly was handling the case as a Rule 2.1 judge and has since retired. We’ll continue to follow this case, which offers the potential to raise many interesting issues as it proceeds, especially in the areas of class notice and administration.

(John Wester of our firm served as amicus counsel to the NC Chamber in Fisher.)

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Recent Filings – December Digest

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Barchiesi, et. al. v. Charlotte School of Law, LLC, et. al., No. 3:16-cv-00861 (W.D.N.C. December 22, 2016) (putative class action against Charlotte School of Law for alleged false and misleading representations related to the school’s failure to provide current and prospective students with information about its noncompliance with ABA standards for accreditation).

Whitehead v. Lutheran Homes of South Carolina, Inc., No. 3:16-cv-03937 (D.S.C. December 16, 2016) (putative class action and purported collective action brought under FLSA and state wage and hour laws alleging defendant failed to pay healthcare workers overtime).

RJF Chiropractic Center, Inc., v. BSN Medical, Inc., et. al., No. 3:16-cv-00842 (W.D.N.C. December 14, 2016) (putative class action brought under the Telephone Consumer Protection Act alleging defendant faxed advertisements without plaintiffs’ consent).

Hebert, et. al. v. Santa Fe Natural Tobacco Co., et. al., No. 1:16-cv-01390 (M.D.N.C. December 7, 2016) (putative class action alleging tobacco company deceptively marketed their Natural American Spirit cigarettes as “natural” and “additive-free”).

Triplett v. Rooms To Go North Carolina Corp., No. 5:16-cv-00926 (W.D.N.C. December 1, 2016)  (putative class action alleging breach of contract and UDTPA claims brought by North Carolina customers owning furniture that was not professionally treated with a leather or fabric protectant, despite purchasing an add-on fabric or leather protection plan from Rooms To Go).

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NC Supreme Court Takes Jurisdiction over Order Granting Certification (Fisher Part 1)

View Adam Doerr's Complete Bio at robinsonbradshaw.com In its last batch of opinions for 2016, the North Carolina Supreme Court affirmed the certification of a class of more than 800,000 tobacco farmers in Fisher v. Flue-Cured Tobacco Cooperative Stabilization Corporation. Because Fisher raises a number of interesting class certification issues, and because the North Carolina Supreme Court rarely issues opinions addressing North Carolina Rule 23, we are covering the decision in two parts. In this installment, we provide the background of the case and address the Court’s decision to accept jurisdiction over this interlocutory appeal. In the second installment, we’ll address the Court’s approach to commonality and manageability.

The Supreme Court’s decision in Fisher is the latest chapter in litigation that began more than 11 years ago, when a group of tobacco farmers filed suit against the Flue-Cured Tobacco Cooperative, an agricultural cooperative formed in 1946 to help tobacco farmers market their crop. The plaintiffs alleged that when federal tobacco price support ended in 2004, the Cooperative improperly removed hundreds of thousands of members from its membership rolls. The Cooperative contended that many of these members had not grown tobacco for decades, and that it was simply updating its membership to accurately reflect the much smaller number of active tobacco farmers. Although the plaintiffs asserted a number of different claims, the primary dispute was over the Cooperative’s reserves, which totaled several hundred million dollars.

Fisher is an unusual case in many respects. The litigation itself is quite old—we are not aware of any other active cases with an ’05 case number—and the underlying facts are far older. The Cooperative was founded in 1946, meaning that the certified class would include farmers (or their heirs) who grew tobacco just after the end of the Second World War. The dispute also involved certificates issued for crop years from 1967 to 1973 and federal changes to tobacco price regulation from 1982. The class was also enormous, encompassing over 800,000 members.

The procedure has also been unusual, both at the trial and appellate level. Judge Jolly, formerly the Chief Judge of the North Carolina Business Court, certified the class in 2014, as we reported at the time. The case was not a Business Court case—it was handled by Judge Jolly under Rule 2.1—and the appeal predates direct appeals from the Business Court to the Supreme Court. But in October 2014, the Supreme Court took the unusual step of removing the case from the Court of Appeals on its own motion under Appellate Rule 15(e)(2).

The first question presented involved appellate jurisdiction over the order granting class certification. In federal court, either party can ask the appellate court to appeal a class certification order under Federal Rule of Civil Procedure 23(f)—regardless of whether the order granted or denied class certification. Most other states also permit some interlocutory review of class certification orders. But North Carolina appears to be unique in holding that orders denying class certification are automatically subject to interlocutory appeal, while orders granting class certification generally are not. See, e.g., Frost v. Mazda Motor of America, Inc., 353 N.C. 188, 193 (2000).

John Wester of our firm, representing the NC Chamber as amicus curiae, advocated for a ruling that an order granting class certification could affect a substantial right, permitting interlocutory review. The Chamber’s brief noted that an order granting class certification often put such pressure on a defendant to settle that it effectively determines the outcome of the case. In fact, the Chamber stated that it appeared that the North Carolina Supreme Court had never decided a post-judgment appeal of an order certifying a class action against a private party. The Chamber also argued that permitting interlocutory review of orders granting class certification promoted the development of the law and was a more efficient use of judicial resources than requiring a defendant to proceed to trial before obtaining review.

The Court did not expressly hold that an order granting class certification affects a substantial right, nor did it hold that an order granting class certification could not be the subject of interlocutory review. Rather, it stated that, given the size of the class, the “subject matter of this case implicates the public interest to such a degree that invocation of our supervisory authority is appropriate” and proceeded to review the certification order “notwithstanding that the appeal is interlocutory and ordinarily would not be immediately appealable.” It remains to be seen how this exception to the prohibition against interlocutory appeals will apply in future cases. It is also unclear whether this exception will apply in the North Carolina Court of Appeals, which lacks the Supreme Court’s “supervisory authority” but has previously accepted interlocutory review of an order granting class certification on substantial rights grounds.

For the time being, counsel seeking to appeal from an order granting certification would be advised to petition for certiorari in addition to seeking interlocutory review on substantial rights grounds, as the Cooperative did in this case.

(John Wester of our firm served as amicus counsel to the NC Chamber in Fisher.)

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Recent Filings – November Digest

View Amanda Pickens’ Complete Bio at robinsonbradshaw.com Not every class action court filing in North and South Carolina becomes a full-length post on our blog. Here is a recap of November’s filings:

Anstrom v. Best Logistics Group, Inc., No. 1:16-cv-01365 (M.D.N.C. November 29, 2016) (purported class action and collective action brought under FLSA and state wage and hour laws by freight brokers alleging defendant misclassified employees and failed to pay overtime).

Pasqual v. Cempra, Inc., et. al., No. 1:16-cv-01356 (M.D.N.C. November 22, 2016) (putative class action filed on behalf of shareholders of Cempra, Inc., a clinical-stage biopharmaceutical company, against the company and its officers and directors alleging violations of Sections 10(b) and 20(a) of the Exchange Act arising out of a one-day stock price decline of 61% after the FDA issued a report analyzing Cempra’s clinical development drug).

Autry v. Charlotte Palm Corp., No. 3:16-cv-00797 (W.D.N.C. November 18, 2016) (purported collective action and class action brought under FLSA and state wage and hour laws by servers and bartenders to recover alleged unpaid wages, overtime pay and tips).

Fitzhenry v. Guardian Protection Servs., Inc., et. al., No. 2:16-cv-03597 (D.S.C. November 9, 2016) (order transferring to South Carolina a putative class action brought under the Telephone Consumer Protection Act for unsolicited phone calls).

Mullis v. Wings Over Spartanburg, LLC, et. al., No. 2:16-cv-03578 (D.S.C. November 7, 2016) (purported collective action and class action brought under FLSA and state wage and hour laws by bartenders for an improper “tip credit”).

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