WELA ALERT – Case Update
Martin v. Yasuda, — F.3d — (9th Cir. 7/21/16) (Reinhardt, Wardlaw, and Bennett (N.D. Iowa)
Employer Waives Right to Compel Arbitration by Engaging in Extensive Litigation
Plaintiffs were students at a cosmetology school. As a condition of enrollment, they had to sign an arbitration agreement under the AAA?s Commercial Rules. In order to graduate, students must perform barbering, cosmetology and manicuring services. They also must clean, sweep, wash and fold laundry and sell retail products. They were paid for none of this work. Seventy students filed an action under the FLSA and California law. The school stipulated to discovery and a judicial resolution whether the plaintiffs were employees. The school filed a motion to dismiss. The district court ruled the plaintiffs were employees under California law but not under the FLSA. The parties engaged in extensive discovery. Nearly 18 months after the filing of the case, the school moved to compel arbitration. The district court ruled the school had waived its right to arbitrate. The Ninth Circuit affirmed.
The panel reasoned there were two types of gateway issues regarding arbitration, each of which has a different presumption as to whether the court or the arbitrator resolves the question. The first is the ?question of arbitrability,? whether the parties have submitted a particular dispute to arbitration, including whether the parties are bound by a particular arbitration clause. These disputes are for a court to decide unless the parties clearly and unmistakably provide otherwise. Waiver by litigation falls into this category. It wasn?t sufficient that the agreement provided that all determinations regarding ?the scope, enforceability and effect of the arbitration agreement? would be decided by the arbitrator, particularly since a district court is in a better position than an arbitrator to decide whether litigation before that court was a waiver of the right to arbitrate.
The court ruled that the school had engaged in significant litigation inconsistent with the right to arbitrate and that the plaintiffs could easily show prejudice as a result. ?When a party has expended considerable time and money due to an opposing party?s failure to timely move for arbitration and is then deprived of the benefits for which it had paid by a belated motion to compel, the party is indeed prejudiced.? Here, the plaintiffs would have to re-litigate in arbitration an issue they had already won in court. The panel rejected the school?s ?attempt to?manipulate the judicial and arbitral systems and gain an unfair advantage.?