Friday, January 20, 2006
Class-Action Waiver Upheld in Employment Dispute
By a MetNews Staff Writer
The Court of Appeal for this district yesterday affirmed an arbitration clause in an employment agreement that precludes the use of class actions to resolve disputes.
The dispute resolution program offered by Circuit City Stores, Inc. to its “associates” in 1995 was not unconscionable, Justice Orville Armstrong wrote for Div. Five, because it was voluntary and did not deter employees from obtaining significant remedies for any illegal employment practices.
The panel denied a writ petition brought by Robert Gentry, who sued Circuit City in 2002, claiming that he and other customer service managers were unlawfully classified as executives and denied overtime pay.
The company, which has been involved in a great deal of state and federal litigation over its dispute resolution program, moved to compel arbitration under the 1995 agreement. It presented evidence that Gentry was presented with a packet explaining the program, which included an advisory allowing the employee to opt out of the program within 30 days.
Gentry responded that the purported agreement to arbitrate was unconscionable for a number of reasons, including the inclusion of the class-action waiver. Then-Los Angeles Superior Court Judge Thomas L. Willhite Jr. granted the petition, citing Discover Bank v. Superior Court (2003) 105 Cal.App.4th 326, which held that where there is a valid arbitration clause, governed by the Federal Arbitration Act, the trial court could not apply state substantive law to strike a class action waiver from the arbitration agreement.
Gentry’s writ petition was originally denied by the Court of Appeal, but the Supreme Court granted review pending the outcome of its review of Discover Bank. After it reversed the Court of Appeal in that case, it sent Gentry’s case back to the Court of Appeal for a decision on the merits.
Armstrong distinguished the two cases, noting that Discover Bank was a consumer class action challenging an agreement that the bank purported to form by mailing it to customers with in a “bill stuffer” that the average customer was unlikely to read, which customers could not reject other than by canceling their accounts, and which was held unconscionable, in part, because the denial of a class action remedy effectively insulated the bank from liability because no individual customer would have a large enough claim to justify an action.
In contrast, Armstrong cited two rulings of the Ninth U.S. Circuit Court of Appeals holding that Circuit City’s 1995 agreement was not unconscionable due to the existence of the opt-out provision.
Rejecting Gentry’s claim that his employer attempted to “sucker unsophisticated employees into not opting out,” the justice said the explanation given to the employees was straightforward, advising them that arbitration had both advantages—such as speed and cost-effectiveness—as well as disadvantages, such as lack of jury trial and limited discovery.
Nor, Armstrong went on to say, did the denial of a class action remedy insulate Circuit City from liability, since Gentry could still gain substantial damages and penalties if he can prove his claims.
Attorneys on appeal were Matthew Righetti and John Glugosk of Righetti & Wynne, P.C.., and Ellen Lake for Gentry and Rex Darrell Berry and Scott M. Plamondon of Berry & Block, LLP, for Circuit City.
The case is Gentry v. Superior Court (Circuit City Stores, Inc.), B169805.
Copyright 2006, Metropolitan News Company