California and Federal Antitrust Law Update: Procedural Developments

JurisdictionCalifornia,United States,Federal
AuthorBy Thomas Greene
Publication year2020
CitationVol. 30 No. 1

By Thomas Greene1

A. Ninth Circuit Articulates Rules for Post-Spokeo Standing Patel v. Facebook, Inc.2

This case arose from alleged violations of the Illinois Biometric Information Privacy Act (BIPA).3 Representative plaintiffs were Illinois residents who alleged that Facebook failed to protect and properly eliminate biometric face templates as required by BIPA. Face templates are an individual set of measurements and mathematical relationships that allow identification of individuals from photographs.

The plaintiffs brought their action in California where Facebook maintains its headquarters. Facebook moved to dismiss this action on standing grounds, which motion was denied. The trial court subsequently certified a class of Facebook users located in Illinois for whom Facebook had created and stored a face template after June 7, 2011.

At issue in this appeal was whether the plaintiffs had standing to bring their action. In response to a remand from the U.S. Supreme Court in Spokeo v. Robbins,4 the Ninth Circuit had already adopted a two-step approach to whether the violation of a statute confers standing. The 9th Circuit asks two questions: "(1) whether the statutory provisions at issue were established to protect [the plaintiff's] concrete interests (as opposed to purely procedural rights) and, if so, (2) whether the specific procedural violations alleged in this case actually harm, or present a material risk of harm to, such interests.5

As to the first question, Circuit Judge Ikuta surveys the history of protection of privacy over time. She starts by citing with approval the seminal article co-written by the future Justice Brandeis, which reviewed the then-preceding 150 years of law on privacy.6 She goes on to survey recent decisions on the common law roots of the right to privacy and the intertwining of these common law rights into current First and Fourth Amendment jurisprudence.7 She notes that the judgement of the Illinois Legislature "is 'instructive and important' to our standing inquiry."8 She quotes with approval the conclusion of the Illinois Supreme Court that "an individual can be 'aggrieved' by violation of BIPA whenever 'a private entity fails to comply" with the requirements of the law. She concludes that the provisions of the Illinois law "were established to protect an individual's 'concrete interests' in privacy, not merely procedural rights."9

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Turning to the second question, she concludes that Facebook's failure to comply with BIPA "is the very substantive harm targeted by BIPA." Since BIPA protects that plaintiffs' concrete privacy interests and violations of the procedures in BIPA "actually harm or pose a material risk of harm to those privacy interests [citation omitted] the plaintiffs have alleged a concrete and particularized hard, sufficient to confer Article III standing."10

This decision is an important one and may well generate a petition for certiorari. But this analysis provides a road map to legislatures on how to write statutes that will be given effect in federal courts. It also provides a road map to both plaintiffs and defendants litigating privacy cases.

The Ninth Circuit is a leading voice in privacy protection. The results in other circuits have been mixed. For example, a D.C. trial court rebuffed a smorgasbord of potential theories of loss, concluding that only actual damages count.11 Also in the mix is the remand by the U.S. Supreme Court back to the Ninth Circuit of a decision involving Google.12 This SCOTUS decision appears to be less friendly to standing than the 9th Circuit's decision in Patel. That said, the thoughtful opinion of Circuit Judge Ikuta may carr y the day.

A. Ninth Circuit Determines Federal Arbitration Act Does Not Preempt California Right to Seek Public Injunctions Blair v. Rent-A-Center, Inc.13

In the underlying litigation, plaintiff claimed that Rent-A-Center had engaged in pricing and other conduct that violated the Karnette Rental-Purchase Act.14 Plaintiff brought a putative class action seeking relief under the unfair Competition Law15 and the Consumer Legal Remedies Act.16

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However, an arbitration contract precluded trial court actions, which Rent-A-Center sought to enforce. At issue in this appeal was whether the consumer could be required to forgo seeking a public injunction under the UCL or the CRLA. Such injunctions under these Acts can include prohibitions on future violations of the Acts, an accounting, individualized notice to those consumers whose rights had been violated, and restitution.

The Ninth Circuit found that California's prohibitions against claimants seeking public injunctions—the so-called McGill rule17—was not designed to limit arbitration. Rather, the rule protects consumers from waiving their rights to public injunctions in any forum. On this basis the court found that the purported waiver was precluded by state law.

Rent-A-Center has had success in the past enforcing its arbitration contracts,18 so a petition for certiorari can be expected.

B. California Supreme Court Voids Arbitration Agreement as Unconscionable OTO L.L.C. v. Kho19

Under the Federal Arbitration Act's savings clause, unconscionability is a valid ground for invalidating an arbitration agreement.20 This appeal arises from an administrative action filed by a mechanic seeking back pay from a Toyota dealership. While this decision arises from an ordinary labor setting, it substantially clarifies California's law of unconscionability. It also provides a tutorial on drafting arbitration agreements.

Plaintiff Kho was an automobile technician working for One Toyota, the trade name for OTA L.L.C. Three years into his tenure with OTA, Kho was approached by a "porter" with the personnel department who asked him to sign some papers. Since he was in the middle of a job, he took approximately four minutes to review and sign the documents. The principal document was a dense, single-spaced arbitration agreement that mandated arbitration for most employment issues; required that arbitration be handled by a retired superior court judge; required adherence to all California rules of pleading, discovery and evidence; and provided for resolution by summary judgement or judgment on the pleadings.

The allocation of costs was not specified except by a cite to a code section that generally provides that parties must pay their own costs. This agreement replaced a simpler, less formal Berman proceeding provided by Cal. Labor Code §§ 98-98.8.21 Several months after his employment ended, he filed a wage claim against OTA with the Labor Commissioner.

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The question for the California Supreme Court was whether this contract was unconscionable. The Court had previously decided that any agreement that eliminated the Berman proceeding was contrary to California law and policy so could not be imposed on employees.22 This decision was reversed and remanded by the U.S. Supreme Court, relying on AT&T Mobility LLC Concepcion.23 Upon remand, the California Supreme Court concluded that an agreement to arbitrate wage disputes (in lieu of using the Berman process) can be enforceable so long as it provides an accessible and affordable process for resolving these disputes.24

Unconscionability in California has a procedural element and a substantive element. "The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided."25

Examining the first element, procedural unconscionability, the Court noted that the "circumstances relevant to oppression include, but are not limited to, (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party's review of the proposed contract was aided by an attorney."26

The Court criticized that environment during the signing and the lack of explanation for the "opaque" provisions of the contract. The Court strongly criticized "complex" sentences in the agreement filled with "statutory references and legal jargon." The Court concluded that the "circumstances here demonstrate significant oppression."27

Turning to the second element, substantive unconscionability, the Court found that the agreement did not explain how to start an arbitration; the procedure itself was "difficult for an unsophisticated, unrepresented wage claimant to navigate," and imposed potentially significant legal costs on the claimant.28 The Court found that this element of the test was also met.

Although this decision arises from an employment dispute, the discussion of the fatal weaknesses in the agreement are relevant to anyone drafting or litigating an arbitration agreement. Standout issues include:

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  • Make clear how arbitration can be started and who pays for the process;
  • Plain English is a must;
    • But if the weaker party's primary language is not English, that factor may be added to the unconscionability analysis although that issue was left open in this case.29
  • Unexplained references to code sections or cases are not appropriate;
  • The weaker party should be given time to review the agreement and that party should have the opportunity to ask questions and receive informed answers; and
  • Any waivers of rights should be prominently displayed.

If your responsibilities include arbitration agreements, this is a must-read case.

C. SCOTUS Denies Certiorari for A California Decision Denying Arbitration Based on California Unconscionability Law Ramos v. Superior Court30

While a denial of...

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