Class-Action Suit Against Starbucks Grinds to a Halt
Don’t even get me started about class-action lawsuits.
In most (but not all) cases they are nothing but legalized extortion. They do not seek to address or correct a wrong, but rather are directed at hyper-technical violations that are used to create a putative class. In the end, the lawyers make millions in attorney fees and the "solution" to the problem is often comical. There is no shortage of examples, but one of my favorites involved the Jenny Craig diet centers. A class action was brought because Jenny Craig was committing the heinous act of failing to disclose that all the thin people displayed in the print ads did not represent the "typical" results. (Would anyone on the Jenny Craig diet have believed that all who entered would achieve the same results as those highlighted in the ads?) The class-action lawyers were paid huge legal fees, and for settlement the represented members received – are you ready? – a set of Jenny’s diet motivation tapes.
If a business is committing a genuine wrong that is causing real injury, and refuses to correct the situation, then have at them. But my frustration comes from the fact that many of these suits involve no real wrong, and in any event could be corrected with a stern letter from an attorney.
The California Court of Appeal agreed with my opinion of class-action lawsuits in the recent decision, Starbucks v. Superior Court (2008 DJDAR 18131). In the 1970s, California passed an obscure Labor Law that prohibits employers from asking prospective employees about minor marijuana-related convictions that are more than two years old. The two-page employment application form used by Starbucks, designed for nationwide use, asks the applicant to disclose marijuana convictions, which is theoretically a violation since the applicant could choose to disclose a conviction more than two years old if unaware of the law. However, the second page of the form specifically instructs California applicants not to disclose marijuana convictions more than two years old.
Plaintiffs’ counsel claimed that was not good enough, arguing that the question and the disclaimer should be together. (A letter from my office could have corrected that, but perhaps plaintiffs’ counsel is not as persuasive.) Unfortunately for Plaintiffs’ counsel, of the three representative plaintiffs, two testified at their depositions that they understood the disclaimer, and all three testified that they had no marijuana convictions to disclose. Nonetheless, attorneys for the class were seeking the statutorily mandated $200 per offense, which would have resulted in an eight-figure award if successful. Incredibly, Judge David C. Velasquez of the Orange County Superior Court denied Starbuck’s motion for summary judgment and certified the class, allowing the case to go forward.
In reversing Judge Velasquez and ordering the case dismissed, the Court of Appeal stated that "there are better ways to filter out impermissible questions on job applications than allowing ‘lawyer bounty hunter’ lawsuits brought on behalf of tens of thousands of unaffected job applicants." Justice Raymond Ikola added, "the civil justice system is not well served by turning Starbucks into a Daddy Warbucks."
The Supremes Open Small Window to Arbitration Appeals
The very purpose of contractual arbitration is to avoid the courts. Therefore, the courts have long held that there is no right of appeal from an arbitrator's award; any decision is final and binding. The only exceptions are where the arbitrator clearly exceeds his authority or had a conflict of interest. In the recent decision of Cable Connections, Inc. v. DirecTV, Inc., the California Supreme Court applied a contract interpretation that recognizes one more basis for appeal from an arbitrator's award. The courts have refused to honor appeal rights in arbitration agreements that call for the right of appeal on the merits of the case.
In Cable Connections, the agreement between the parties provided for binding arbitration, but contained the unusual language that "the arbitrators shall not have the power to commit errors of law or legal reasoning, and the award my be vacated or corrected on appeal to a court of competent jurisdiction for any such error." Thus, the agreement does not permit a review on the merits, but does allow for an appeal to question the arbitrator's interpretation of the law.
The Supreme Court had no problem with that approach, and even went so far as to state that the language of the arbitration agreement would not need to be as clear as the one before it to confer such a right of appeal on the law.
You may be asking yourself, why would anyone want to proceed in this manner? After all, if the point of arbitration is to avoid court, why build in a right of appeal? The answer is that binding arbitration without the right of appeal can be very scary, and some want to plot a middle course.
In one case my client agreed to submit a case we were pursing in court to non-binding arbitration. We went before the arbitrator, and after the matter was concluded and the parties were leaving, the arbitrator asked the defendant if my client had ever made certain disclosures. The defendant lied and denied that she had received such disclosures. I objected to this impromptu questioning and asked the arbitrator to resume the arbitration so that my client could testify on the point he had raised. The arbitrator responded that would not be necessary, because defendant had never raised the disclosure issue, and therefore his decision would have nothing to do with what defendant had just said.
A few weeks later we received the arbitrator's decision, wherein he found for defendant based entirely on the alleged lack of disclosure. Since this was non-binding, I simply rejected the award and proceeded to trial, where we handily prevailed. This case showed me, however, how arbitrary an arbitrator's award can be, and why binding arbitration can be risky.
Large companies have also learned this lesson, and reason that if they throw in an opening for appeal, it is more likely to inure to the company's benefit than the other side's. Even if it means the occasional appeal, at least the issues will be limited to the law. A major motivation for large companies in selecting arbitration is to keep cases away emotional juries, and that is accomplished even with an appeal provision.
