Thursday, August 29, 2013
Michelle Richards brought a class acction lawsuit in Federal District Court against her former employer Ernst & Young (E&Y). After her claim was consolidated with similar claims brought by other former E&Y employees, E&Y filed a motion to compel arbitration. The District Court ruled that E&Y had waived its right to compel by not asserting that right in the other cases.
On August 21st, the Ninth Circuit reversed. Courts disfavor a finding that a party has waived its contractual right to arbitrate. In order to establish a waiver, a party must show:
(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.
Although Richards claimed that she had been prejudiced, because the District Court had already ruled on some of her claims, the Ninth Circuit rejected that argument because the District Court had not decided any of her claims on the merits. One claim was dismissed without prejudice; another was dismissed for lack of standing.
Richards also claimed that she had been prejudiced by the expenses incurred during years of litigation prior to E&Y's motion to compel. The Ninth Circuit found that she had not been prejudiced because she had not alleged that E&Y sought discovery of information that could not have been obtained in arbitration. In addition, the Ninth Circuit will not find prejudice when expenses are "self-inflicted," and here the expenses were self-inflicted because Richards chose to bring her claim in "an improper forum, in contravention of" her agreement with E&Y to arbitrate her claims.
Finally, the Ninth Circuit rejected Richards' argument that her claim under the National Labor Relations Act should not be arbitrated on the ground that (oh, the irony!) she had not raised it in a timely manner. In any case, that claim was doomed under Italian Colors.
In a final footnote, the Ninth Circuit also reverses the Distirct Court's grant of class certification, since (you guessed it!) the arbitration agreement precludes class arbitrations.
[JT, with hat tip to former blog intern, Justin Berggren]