Petition for Writ of Certiorari — Long John John Silver's Inc. Inc. v. Cole (No. 07-1370)

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Supreme Court, U.S,

rLED

(VY 071370 APR 25 2008

No.

IN THE

Supreme Court of the Gnited States

‘HENRY L. PARR, JR.

LONG JOHN SILVER’S, INC.,

Petitioner,

Vv.

ERIN COLE, ET AL.

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Fourth Circuit

PETITION FOR A WRIT OF CERTIORARI

PETER J. GREGORA DAN HIMMELFARB

LAURA W. BRILL Counsel of Record

Irell & Manella LLP ROBERT P. DAVIS

1800 Avenue of the Stars TAMARA S. KILLION

Los Angeles, CA 90067 Mayer Brown LLP

(310) 277-1010 1909 K Street, NW

Washington, DC 20006

DAVID H. KoyszA (202) 263-3000

Wyche, Burgess,

Freeman and

Parham, P-.A.

Post Office Box 728

Greenville, SC 29602

(864) 242-8200

Counsel for Petitioner

Wi.aon-Eres Prune Co.,ivc — (202)788-0086 — WasHmneoron, D.C. 20002

QUESTION PRESENTED

In Shearson/American Express Inc. v. McMahon,

482 U.S. 220 (1987), and Gilmer v. Inter-

state/Johnson Lane Corp., 500 U.S. 20 (1991), this

Court held that federal statutory claims were arbi-

trable because “although judicial scrutiny of arbitra-

tion awards necessarily is limited, such review is suf-

ficient to ensure that arbitrators comply with the re-

quirements of the statute.” McMahon, 482 U.S. at

232: Gilmer, 500 U.S. at 32 n.4. Since then, the Sec-

ond, Fourth and Eleventh Circuits have held that a

federal court must confirm’an arbitral award that

misinterprets a federal statute unless the arbitrator

intentionally misinterpreted the statute. In contrast,

the District of Columbia and Fifth Circuits have held

that such an award must be vacated if, regardless of

the arbitrator’s willfulness, the error in interpreting

the statute materially affects a party’s substantive

' rights.

The question presented in this case is what de-

gree of “judicial scrutiny ... is sufficient to ensure

that arbitrators comply with the requirements of the

statute.”

. ii

RULE 14.1(b) STATEMENT

Petitioner is Long John Silver’s, Inc. Long John

Silver’s Restaurants, Inc. was listed as an appellant

in the court of appeals, but that corporation has

merged into Long John Silver’s, Inc. and no longer

exists. Respondents are Erin Cole, Nick Kaufman

and Victoria McWhorter.

RULE 29.6 STATEMENT

Petitioner Long John Silver’s, Inc. is a wholly

owned subsidiary of Yum! Brands, Inc. Yum!

Brands, Inc. is a publicly held company. No publicly

held company owns 10% or more of the stock of Yum!

Brands, Inc.

lil

TABLE OF CONTENTS

Page

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RULE 14.1(b) STATEMENT ...................ccccccesseecereees li

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STATUTORY PROVISION INVOLVED.................... 1

STATEMENT OF THE CASE ..0..2....6...0c..000.cccccccccccs 2

A. Respondents Institute A Class Arbitration

RF Te hs ia inceccnkccecse sie dedksccccacccewecncceccasees 4

B. The Arbitrator Certifies An “Opt Out”

Class And Refuses To Apply The Written

Consent Requirement Of FLSA § 16(b). ............... 6

C. The District Court Upholds The

Arbitrator’s Ruling Without Deciding

Whether It Violated The FLSA. ........................00 8

D. The Court of Appeals Upholds The

Arbitrator’s Ruling Without Deciding

Whether It Violated The FLSA. ................... ee 11

REASONS FOR GRANTING THE PETITION ....... 13

A. The Fourth Circuit’s Decision In This Case

Conflicts With This Court’s Holdings In

McMahon And Gilmer And, If Permitted To

Stand, Will Raise Serious Questions

Regarding The Arbitrability Of Statutory

BRR SAN PR ieee RNs BRAN AL cer OO Pee Se Oe 14

TABLE OF CONTENTS—continued

Page

McMahon and Gilmer premised their

holdings that statutory claims were

arbitrable upon the explicit assumption |

that judicial review would be adequate

to ensure that arbitrators properly

interpreted and applied federal

BE isc secs isd tats einen ts vce nnicesccesesses 14

The Fourth Circuit’s decision in this

case is inconsistent with McMahon and

Gilmer and, if allowed to stand, will

undermine the critical-assumptions

upon which McMahon and Gilmer were

pg REESE SEALERS HS AMES DES Ue 17

B. The Circuits Have Split On The

Appropriate Standard Of Review Of

Arbitral Decisions Of Claims Under

BP Soi ois kccrceuknnicecsceccscsccvccscccceess 18

The Fourth, Second and Eleventh

Circuits apply the same highly

deferential standard to all arbitral

awards, regardless of whether they

involve claims under federal statutes............ 19

The District of Columbia and Fifth

Circuits apply a heightened standard of

review for arbitral decisions involving

RR WN ci cise coca vackcidaccccacecoesvosee 22

C. The Fourth Circuit’s Decision Has

Encouraged — And, If Permitted To Stand,

Will Continue To Encourage — Arbitral

Misapplications Of Federal Statutes. ................. 25

wy LS

pa.

TABLE OF CONTENTS—continued

Page

D. The Present Case Is An Ideal Vehicle For

Deciding The Question Presented Because

The Result Would Be Different Under The

Correct Standard Of Review........................0006..

1. Congress adopted the written consent

requirement for public policy purposes

to carefully balance the interests of

employees and employe!rS. ............::.scsscceeees

2. It is impossible to apply the FLSA

statute of limitations without the

written consent requirement........................

3. The arbitrator’s attempt to bind non-

consenting class members violates the

FLSA and raises serious due process

cis cskccdscseicantcececedcensnarcncsesvcoines

APPENDICES

A. Long John Silver’s Restaurants, Inc. v.

Cole, 514 F.3d 345 (4th Cir. 2008)...

B. Long John Silver’s Restaurants, Inc. v.

Cole, 409 F. Supp. 2d 682 (D.S.C. 2006) ...........

C. Cole v. Long John Silver’s Restaurants,

Inc., Case No. 11-160-00194-04, Class

Determin=tion Partial Final Award (AAA

2 ES SERRE SRS ee RR

D. Rules 1-€ of the American Arbitration

Association’s Supplementary Rules for

Class Arbitrations (Oct. 8, 2003).........0..0.00.000.

TABLE OF CONTENTS—-continued

Page

E. Letter from respondents’ counsel to the

Fourth Circuit submitted pursuant to Fed.

R. App. P. 28(j) and 4th Cir. R. 28(e) (Dec:

We PF ci siesceiiavec ok covscocvsiwaidins acbcdbdavnGressvcneoscvanas 58a

hi >

> Se et eae

vii

TABLE OF AUTHORITIES

Page(s)

CASES

Anderson v. Mount Clemens Pottery Co., 328 U.S. 680

iL RSCOEISEE COS ce etn es te eee RRR Soe 27, 28

Brown v. ITT Consumer Financial Corp., 211 F.3d

ESET Co Ba Gee ROO assess icisicasecscsecsctecssscseee 21, 25

Cameron-Grant v. Maxim Healthcare Services, Inc.,

347 F.3d 1240 (11th Cir. 20038).................ccccceees 6, 28

Carter v. Countrywide Credit Industries, Inc., 362

F.3d 294 (5th Cir. 2004)... eee 24, 25

Chisholm v. Kidder, Peabody Asset Management,

Inc., 966 F. Supp. 218 (S.D.N.Y. 1997) ........... 21-22

Cole v. Burns International Security Services, 105

F.3d 1465 (D.C. Cir. 1997)................0000 3; 22, 23, 26

Comedy Club, Inc. v. Improv West Associates, 502

pe Se SE Oy say 9 SRNR eeppeRnn a ierTy Pe Nopee 20

De Asencio v. Tyson Foods, Inc., 342 F.3d 301 (3rd

CORN, SRN daa cca iss Sancdch cunts buscedasseevacesvavecuasedseameene eo

Dolan v. Project Constr. Corp., 725 F.2d 1263 (10th

CT a ion ae ira cuncucaun tine ois sacsuauosccuas ceeccie nucle 6

Federated Department Stores, Inc. v. J.V.B. Indus,

Inc., 894 F.2d 862 (6th Cir. 1990) ............. eee 20

First Options of Chicago, Inc. v. Kaplan, 514 U.S.

IER Ca Na csc Gai prceaaad caceaapecacwukdbacGeauclucaciiissanseive 19

French v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 784 F.2d 902 (9th Cir. 1986) ...............000.. eee 20

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

BEE ee ass ciok cacicencaccbb duc cucses asides ncacissceressc ae

GMS Group, LLC bv. Benderson, 326 F.3d 75 (2d Cir.

Hall Street Associates, LLC v. Mattel, Inc., No. 06-

OSS Giharcen 25, ZOOS) ooo sec ccciccccccscedeccvcccases 19, 20

> Seg

Parca.

viii

TABLE OF AUTHORITIES—continued

} Page(s)

Hoffman-La Roche, Inc. v. Sperling, 493 U.S. 165

Riis tas Sonivcsccédabasedensoasipsmcbsscuacenibons Nebarekaueivabanane 28

Kyocera Corp. v. Prudential-Bache Trade Servs., Inc.,

341 F.3d 987 (9th Cir. 2003) (en banc)....:.........005 20

LaChapelle v. Owens-Illinois, Inc., 513 F.2d 286 (5th

SSS EEN E a. ios ssawn tu ad GcccasinaceakcussodpaniceobebTeakelaccnaaens 6, 31

McElmurry v. U.S. Bank N.A., 495 F.3d 1136 (9th

CU BOOT oso oh eek owiciiesss iideaaa da Ccuuacoeereabnwiuus 31

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614 (1985) .........cecceecceeeseceeeees 2, 15, 16

Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999)........ 32

Remmey v. PaineWebber, Inc., 32 F.3d 143 (4th Cir.

ph 2 ESSERE USER aSeLs SSN NN aR Foc et RRR Gey Otis 9

Rodriguez de Quijas v. Shearson/American Express,

Ene: 490 U.S. 47 T CEOS) ocvcciceccccccccsecscseccocovseepsavees 15

Schmidt v. Fuller Brush Co., 527 F.2d 532 (8th Cir.

Shearson/American Express Inc. v. McMahon, 482

a ee Ga vias i cencssusischcncneedccesdssanesducnboaves passim

U.S. Postal Service v. American Postal Workers

Union, AFL-CIO, 204 F.3d 523 (4th Cir. 2000) ....20

United Steelworkers of America v. Enterprise Wheel

and Car Corp., 363 U.S. 593 (1960) ...................... 14

Whalen v. W.R. Grace & Co., 56 F.3d 504 (8rd Cir.

pS REE EROS ORME SI eo to Phe iuds CINCH tee ORR APRS A 31

Wilko v. Swan, 346 U.S. 427 (1953)................00.. 15, 19

Williams v. Cigna Financial Advisors Inc., 197 F.3d

“TES GRR Car: 199) 5.0. cea sccsseseciavsncessvigsscsvenvaes passim

Woods v. New York Life Ins. Co., 686 F.2d 578 (7th

RO, WON ak ba seks Siiies Scan conde ecabavnecbahdid ca uene@ ante 32

TABLE OF AUTHORITIES—continued

Page(s)

STATUTES

Fair Labor Standards Act (FLSA),

BEF Ee We NE OF BOD. vcserscicseevecssecsccccceseseeses passim

FLSA, § 16(b), 29 U.S.C. § 216(b)..............0... passim

Portal-to-Portal Act, Pub. L. No. 80-49, ch. 52 (80th

Cong., 1st Sess.), reprinted in United States Code

Congressional Service (Laws of 80th Cong., 1st

SN ETD IE TB EOESE ivccyhcsindccecévensvecccdsvsocussecvssousesss 28

Sr sia kivsdvns ves seoveivenesovscduevesvscvcessssecesensdons 19

NN cn. svcvesesosunvesascsecsoverscesovscsceseennpes 30

MISCELLANEOUS

Calvin Sharpe, Integrity Review of

Statutory Arbitration Awards,

54 HASTINGS L.oJ. 311 (2OOS)..............ccrccccseccsssceeees 18

U.S. Commission on the Future of Worker-

Management Relations — Final Report (1994) .....24

PETITION FOR A WRIT OF CERTIORARI

Petitioner, Long John Silver’s, Inc., respectfully

petitions for a writ of certiorari to review the judg-

ment of the United States Court of Appeals for the

Fourth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (Appendix

Submitted Herewith (“App.”) la-16a) is reported at

514 F.3d 345. The opinion of the district court (App.

17a-28a) is reported at 409 F. Supp. 2d 682.

JURISDICTION

The court of appeals issued its opinion on Janu-

ary 28, 2008. The jurisdiction of this Court is in-

voked under 28 U.S.C. § 1254(1).

STATUTORY PROVISION INVOLVED

Section 16(b) of the Fair Labor Standards Act, 29

U.S.C. § 216(b), provides, in pertinent part, as fol-

lows:

Any employer who violates the provisions of

section 6 or section 7 of this Act shall be li-

able to the employee or employees affected in

the amount of their unpaid minimum wages,

or their unpaid overtime compensation, as

the case may be, and in an additional equal

amount as liquidated damages. ... An action

to recover the liability prescribed in either of

the preceding sentences may be maintained

against any employer (including a_ public

agency) in any Federal or State court of com-

petent jurisdiction by any one or more em-

ployees for and in behalf of himself or them-

selves and other employees similarly situ-

ated. No employee shall be a party plaintiff

to any such action unless he gives his consent

in writing to become such a party and such

consent is filed in the court in which such ac-

tion is brought.

Rules 1-6 of the American Arbitration Associa-

tion’s Supplementary Rules for Class Arbitrations

(Oct. 8, 2003) are reproduced at App. 50a-57a.

STATEMENT OF THE CASE

_ The present case presents an important issue re-

garding the review of arbitrators’ interpretation and

application of federal statutes. The circuits have

split on this question, with the District of Columbia

Circuit and the Fifth Circuit holding that a court re-

- viewing an arbitral decision under a federal statute

must ensure that the arbitrator has correctly inter-

preted and applied the statute, while the Fourth Cir-

cuit (in this case), the Second Circuit and Eleventh

Circuit have held that courts must confirm an arbi-

tral decision applying a federal statute — regardless

of errors in interpretation or application of the stat-

ute — so long as the arbitrator’s errors were not will-

ful.

In Shearson/American Express Inc. v. McMahon,

482 U.S. 220 (1987), and Gilmer uv. Inter-

state/Johnson Lane Corp., 500 U.S. 20 (1991), this

Court held that federal statutory claims were arbi-

trable. The Court explained that “by agreeing to ar-

bitrate a statutory claim, a party does not forgo the

substantive rights afforded by the statute; it only

submits to their resolution in an arbitral, rather

than a judicial, forum.” McMahon, 482 U.S. at 229-

230 (quoting Mitsubishi Motors Corp. v. Soler Chrys-

ler-Plymouth, Inc., 473 U.S. 614, 628 (1985)); Gilmer,

i Bont ek a a ae en Pets Feist ers Ponte 7 SS ee

GPE gL EE Pe es a CER SS ee ay Bae ST ery >

500 U.S. at 26 (same). The Court emphasized that

“although judicial scrutiny of arbitration awards

necessarily is limited, such review is sufficient to en-

sure that arbitrators comply with the requirements of

the statute.” McMahon, 482 U.S. at 232 (emphasis

added); Gilmer, 500 U.S. at 32 n.4 (same).

Despite this Court’s clear statements in McMa-

hon and Gilmer, several circuits (including the

Fourth Circuit in this case) apply a standard of re-

view that explicitly permits arbitral noncompliance

with statutory requirements — they will not vacate

an erroneous arbitral interpretation of a federal

statute unless the aggrieved party can demonstrate

that the arbitrator willfully misapplied the statute.

In the Fourth Circuit’s words, a reviewing court is

entitled to “determine only whether the arbitrator

did his job — not whether he did it well, cerrectly, or

reasonably.” App. 7a. By contrast, the District of

Columbia Circuit and the Fifth Circuit have relied

upon McMahon and Gilmer to hold that courts re-

viewing arbitral decisions applying a federal! statute

‘must ensure that the arbitrator has correctly inter-

preted and applied the statute. See Cole v. Burns In-

ternational Security Services, 105 F.3d 1465, 1487

(D.C. Cir. 1997) (standard of review must be “suffi-

ciently rigorous to ensure-that arbitrators have prop-

erly interpreted and applied statutory law”); Wil-

liams v. Cigna Financial Advisors Inc., 197 F.3d 752,

_ 761 (5th Cir. 1999) (“The federal district courts and

courts of appeals are charged with the obligation to

exercise sufficient judicial scrutiny to ensure that

arbitrators comply with their duties and the re-

quirements of the statutes.”).

In this case, the arbitrator clearly misinterpreted

the Fair Labor Standards Act. However, the court of

appeais never reached that issue because it applied a

standard of review it characterized as “among the

narrowest known to the law.” App. 7a. Under the

standard applied by the court of appeals, the court

must affirm an erroneous statutory interpretation

unless the aggrieved party can demonstrate that the

arbitrator intentionally misinterpreted the law.

The Fourth Circuit’s decision in this case violates ° g

the requirements of McMahon and Gilmer, under- E

mines the fundamental basis upon which this Court a

held that federal statutory claims were arbitrable, a

and exacerbates an already serious circuit split re- - oe

garding the appropriate standard of review for arbi-

tral decisions interpreting federal statutes. _

A. Respondents Institute A Class Arbitra-

tion Under The FLSA.

The named Respondents are former managers of |

restaurants owned by Petitioner. In December 2003, 4

Respondents instituted an arbitration proceeding -

against Petitioner before the American Arbitration a

Association (the “AAA”), asserting claims for over-

time compensation under the Fair Labor Standards

Act (the “FLSA”), 29 U.S.C. §§ 201 et seg. The arbi-

tration proceeding was instituted pursuant to arbi-

tration agreements between Petitioner and Respon-

dents providing that claims involving Respondents’ 4

employment would be resolved by arbitration before

the AAA. See Joint Appendix Filed with the Court of

Appeals (“JA”) 84. The arbitration agreements fur-

ther specified that the arbitrator would “apply the

substantive law (and the law of remedies, if applica- a

ble) in the state in which the claim arose, or federal 4

law, or both, depending on the claims asserted” (JA

84) and that the arbitrator may award “anything

{the employee] might seek through a court of law”

(JA 81).

In their arbitration complaint, Respondents pur-

ported to act on behalf of all “similarly situated” em-

ployees pursuant to § 16(b) of the FLSA. JA 186.

Section 16(b) permits a collective action in which

FLSA plaintiffs may proceed on behalf of similarly

situated employees — but only those employees who

expressly consent in writing to join the action:

[An action to enforce rights under the FLSA]

may be maintained against any employer...

in any Federal or State court of competent

jurisdiction by any one or more employees for

and in behalf of himself or themselves and

other employees similarly situated. No em- |

ployee shall be a party plaintiff to any such

action unless he gives his consent in writing

to become such a party and such consent is

filed in the court in which such action is

brought. |

29 U.S.C. § 216(b) (emphasis added). Respondents

asked the arbitrator to authorize the arbitration to

proceed as a collective action pursuant to § 16(b). JA

188.

More than a year later, Respondents abandoned

their request for a collective action under FLSA

§ 16(b). Instead, they asserted that compliance with

the written consent mandate of § 16(b) was unneces-

sary, and sought class certification under the AAA

Supplementary Rules for Class Arbitrations. JA 107-

108.

B. The Arbitrator Certifies An “Opt Out”

Class And Refuses To Apply The Written

Consent Requirement Of FLSA § 16(b).

On September 19, 2005, the arbitrator issued a

Class Determination Award. App. 29a-49a. In that

award, the arbitrator concluded that the written con-

sent mandate of FLSA § 16(b) was inapplicable in

arbitration and instead certified an “opt out” class

pursuant to the AAA class arbitration rules. Id. at

35a. Under the arbitrator’s ruling, all persons

within the arbitrator’s class definition are deemed to

be class members (and bound by the results of the

arbitration) unless they affirmatively request exclu-

sion from the class. Such an “opt out” class has been

uniformly recognized as “irreconcilable” with the

written consent requirement of FLSA § 16(b). La-

Chapelle v. Owens-Illinois, Inc., 513 F.2d 286, 289

(5th Cir. 1975); see Cameron-Grant v. Maxim Health-

care Services, Inc., 347 F.3d 1240, 1249 (11th Cir.

2003) (An FLSA collective action under § 16(b) is “a

fundamentally different creature than the Rule 23

class action.”); Dolan v. Project Constr. Corp., 725

F.2d 1263, 1267 (10th Cir. 1984) (“The policies be-

hind the (29 U.S.C.] § 216(b) action are almost d.a-

metrically opposed to those involved in a Rule 23...

action.”).

Nonetheless, the arbitrator concluded that the

written consent requirement of § 16(b) applied only

in court proceedings — not in arbitration — because,

he asserted, there “is no evidence of any congres-

sional intent which would impose an opt-in provision

upon a class action being privately arbitrated.” App.

34a. Characterizing the written consent require-

ment of § 16(b) as merely “procedural,” the arbitrator

held that, solely by agreeing to arbitration, the par-

. SS Saye

ties (including the absent class members) had sur-

rendered their rights under § 16(b) and somehow “in-

corporated” the AAA class arbitration rules “into the

parties’ employment agreement” (App. 35a) — al-

though the agreements make no reference to the

class rules, which did not even exist when the

agreements were entered into.! The arbitrator ex-

plained his reasoning as follows:

Having succeeded in accomplishing 1. private

litigation unmoored from federal procedural

rules, the claim for a necessary adherence to

the FLSA procedural rules is unpersuasive.

Indeed, the judicial preference for the opt-out

procedure is so universal that absent compel-

ling authority requiring adherence to the opt-

in procedure,. there would be no inclination

whatsoever to engraft that procedure upon a

private arbitration. No such compelling au-

thority has been presented.

App. 34a.

The arbitrator further concluded that the “opt

out” structure he adopted was preferable to what he

characterized as the “disfavored” written consent re-

quirement — the requirement that Congress explic-

itly mandated in the FLSA — because the arbitrator’s

1 The AAA caass arbitration rules were adopted in October

2003, only two months before Respondents filed their arbitra-

tion complaint and years after the arbitration agreements were

entered into. In general, the rules utilize standards similar to

those specified in Rule 23 of the Federal Rules of Civil Proce-

dure. The AAA class arbitration rules may be found at

http://www.adr.org/sp.asp?id=21936, and Rules 1-6 are repro-

duced at App. 50a-57a. The arbitration agreements referenced

the AAA’s commercial arbitration rules. JA 84.

chosen method would, in his view, further the pur-

poses of the FLSA by certifying a larger class:

If fairness, efficiency and due process appli-

cable to the widest appropriate class be the

criteria for determination, then the Supple-

mentary Rules as incorporated into the par-

ties’ employment agreement must prevail

over the disfavored opt-in provisions es-

poused by Defendants. The salutary objec-

tive of the FLSA [is] advanced by the opt-out

procedure. —

App. 35a.

The arbitrator thus determined that — contrary

to Congress’s determination ~ the objectives of the

FLSA would be better served by “opt out” class ac-

tions than by the “disfavored” written consent re-

quirement that Congress enacted into law.

C. The District Court Upholds The Arbitra-

tor’s Ruling Without Deciding Whether

It Violated The FLSA.

Petitioner timely filed an action in the United

States District Court for the District of South Caro-

liaa to vacate the arbitrator’s decision on the

grounds that the arbitrator exceeded his powers and

acted in manifest disregard of the law by certifying

an “opt out” class in violation of the written consent

requirement of FLSA § 16(b). JA 24-32, 35-36. Peti-

tioner argued that this Court’s decisions in McMa-

hon and Gilmer required that judicial review be suf-

ficient to “ensure that arbitrators comply with the

requirements of the statute.” JA 23, 26.

The Secretary of Labor submitted an amicus let-

ter to the district court urging the court to vacate the

arbitrator’s decision. As the Secretary explained, the

arbitrator’s decision purported to bind absent class

members without their written consent, in direct vio-

lation of § 16(b):

It was precisely this result [binding class.

members without their consent] that Con-

gress intended to preclude by enacting the

current section 16(b) in 1947. As evinced in

the statutory language (“unless he gives his

consent in writing to become a party”), and

the legislative history, Congress’s clear aim

was to ensure that each employee expressly

consents to any collective adjudication of his

or her rights under the FLSA.

JA 213. The Secretary emphasized that “an em-

ployee’s right to participate in a collective action only

upon submission of one’s written consent is a sub-

stantive right .... [A]n employee can no more waive

his right to consent to suit on his behalf than he can

waive his right to the minimum wage or overtime

pay.” JA 213-214. The Secretary stressed that,

“Ibjecause the statutory written consent provision is

substantive, . . . courts should require arbitrators to

comply with it.” JA 214.

Despite Petitioner’s reliance on McMahon and

Gilmer, the district court held that the appropriate

standard of review was one under which a court

could vacate the arbitrator’s award for legal error

only if the arbitrator was “aware of the law, under-

stood it correctly, found it applicable to the case be-

fore him, and yet chose to ignore it in propounding

his decision.” App. 20a (quoting Remmey v. Paine-

Webber, Inc., 32 F.3d 143, 149 (4th Cir. 1994)) (inter-

nal alterations omitted). Under that standard, the

district court held, an arbitrator’s error of law, even

if blatantly obvious, is not a basis for vacating an

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award: “That the Court may have reached a different

conclusion — or even that the arbitrator may have

made a serious error of law — is of no consequence.”

App. 23a.

Applying this extremely deferential standard,

the district court declined to vacate the arbitrator’s

decision. Noting that FLSA § 16(b) refers to actions

filed in “court,” the district court concluded that this

reference “supplies uncertainty to the question of

whether Congress intended the consent in writing

requirement to govern arbitration proceedings as

well as actions in court.” App. 22a. The district

court also held that the arbitrator did not “disregard

or ignore the statute” because he “explicitly referred

to § 16(b) in his award” and considered both parties’

arguments. App. 22a. Under the standard applied

by the district court, the “uncertainty” as to whether

§ 16(b) applies in arbitration and the arbitrator’s ex-

plicit consideration of § 16(b) required the district

court to uphold the award — regardless of whether

the arbitrator's statutory interpretation was correct.

The district court unequivocally rejected Peti-

tioner’s contention that McMahon and Gilmer re-

quired the court to review the correctness of the arbi-

trator’s interpretation and application of the FLSA:

“The Court finds no basis in the law for Movants’

suggestion that the Court review the arbitrator’s

award under a more rigorous standard, and the

Court declines to undertake such a review here.”

App. 19a n.1.

D. The Court of Appeals Upholds The Arbi-

trator’s Ruling Without Deciding

Whether It Violated The FLSA.

Petitioner timely appealed the district court’s de-

cision to the United States Court of Appeals for the

Fourth Circuit.

Petitioner once again relied upon this Court’s de-

cisions in McMahon and Gilmer, as well as the Fifth

Circuit’s decision in Williams, to argue that courts

have a responsibility to ensure that arbitrators com-

ply with federal statutory requirements. See Pet.’s

4th Cir. Brief, available at 2006 WL 2726265 *34.

Under that standard, Petitioner argued, the district

court was required to vacate the arbitrator’s decision

because the arbitrator refused to apply the written

consent requirement of § 16(b) and failed to comply

with the arbitration agreement’s requirement that

the arbitrator follow the applicable law. Id. at *20-

*23, *47-*49.

The Secretary of Labor filed an amicus brief in

the court of appeals supporting Petitioner and urging

vacatur. The Secretary explained that the written

consent requirement of § 16(b) was substantive and

mandatory:

The Secretary’s primary concern in this case

is to establish that the [FLSA’s] written con-

sent requirement gives parties substantive

rights that, under Gilmer uv. Inter-

state/Johnson Lane Corporation, 500 U.S.

20, 26 (1991), an arbitrator must apply in ar-

bitration. ... The district court’s decision

upholds an arbitrator’s explicit refusal to

treat the written consent requirement as a

substantive right and undercuts the useful-

ness of arbitration as a forum for resolving

FLSA disputes.

2006 WL 1911678 *10.

The court of appeals affirmed without deciding

whether the arbitrator erred. It avoided the neces-

sity of deciding that issue by the standard of review

it applied:

Importantly, any judicial review of an arbi-

tration award is “extremely limited,” and is,

in fact, “among the narrowest known to the

law.” U.S. Postal Serv. v. Am Postal Workers

Union, AFL-CIO, 204 F.3d 523, 527 (4th Cir.

2000) (internal quotation marks omitted). As

we have consistently recognized, a reviewing

court is entitled to “determine only whether

the arbitrator did his job — not whether he

did it well, correctly, or reasonably, but sim-

ply whether he did it.” Mountaineer Gas Co.

v. Oil, Chem. & Atomic Workers Intl Union,

76 F.3d 606, 608 (4th Cir. 1996).

App. 7a.

Although the court of appeals acknowledged that

“Congress inten{ded] that the ‘opt-in’ procedure [of

§ 16(b)} should apply in arbitration as in court pro-

ceedings” (App. 11a), it nonetheless upheld the arbi-

trator’s refusal to apply § 16(b) — a refusal based

solely on the fact that the parties had agreed to arbi-

trate. The court of appeals affirmed on the ground

that Petitioner had not met its “heavy burden [of

showing] that the arbitrator knowingly ignored ap-

plicable law” (App. 12a) because there was “a debat-

able contention” that the parties had waived their

rights under § 16(b) by agreeing to arbitrate (App.

14a).

Notably, the court of appeals never purported to

decide whether the arbitrator’s refusal to comply

with the written consent requirement of FLSA

§ 16(b) was correct or incorrect. Under the court of

appeals’ standard of review, the arbitrator’s legal er-

ror was irrelevant absent a showing that the error

was intentional. Although Petitioner argued that

McMahon and Gilmer required that “judicial review

of an arbitration award must be thorough enough to

ensure that arbitrators comply with the require-

ments of the statute at issue” (2006 WL 2726265

*34), the court of appeals made no mention of this

Court’s statements in McMahon and Gilmer, nor did

it attempt to reconcile them with its own explicit re-

fusal to decide whether the arbitrator had properly

interpreted and applied the FLSA.

REASONS FOR GRANTING THE PETITION

The court of appeals’ failure to decide the propri-

ety of the arbitrator’s refusal to comply with the

written consent requirement of FLSA § 16(b) disre-

gards this Court’s admonitions in McMahon and

Gilmer, deepens an already serious circuit split, and

undermines the entire basis upon which this Court

held that federal statutory claims were arbitrable.

The Court’s expressed assumption that judicial re-

view of arbitral decisions under federal statutes

would be sufficient to ensure arbitral compliance

with those statutes was a critical element of its hold-

ing that statutory claims were arbitrable. The Court

should act to validate that assumption.

A. The Fourth Circuit’s Decision In This

Case Conflicts With This Court’s Hold-

ings In McMahon And Gilmer And, If

Permitted To Stand, Will Raise Serious

Questions Regarding The Arbitrability

Of Statutory Claims.

The Fourth Circuit’s decision in this case con-

flicts with this Court’s decisions in McMahon and

Gilmer. Those decisions held that claims under fed-

eral statutes were arbitrable. That holding was ex-

pressly premised on the stated belief that judicial re-

view of arbitrators’ interpretations of federal statutes

would be sufficient to ensure that the arbitrators

- correctly interpreted and applied those statutes. The

Fourth Circuit’s decision in this case challenges that

belief, since it applies a standard of review that es-

chews any effort to ensure that arbitrators correctly

interpret and apply federal statutes.

1. McMahon and Gilmer premised their

holdings that statutory claims were

arbitrable upon the explicit assump-

tion that judicial review would be

adequate to ensure that arbitrators

properly interpreted and applied

federal statutes.

Judicial review of arbitral decisions has tradi-

tionally been quite narrow. This Court’s early deci-

sions regarding the standard of review of arbitral de-

cisions involved arbitrations under collective bar-

gaining agreements. In that context, the Court held

that judicial review of arbitral awards should be ex-

tremely limited. United Steelworkers of America v.

Enterprise Wheel and Car Corp., 363 U.S. 593, 596-

597 (1960).

The Court recognized that arbitration of claims

under federal statutes presented an entirely differ-

ent issue because such claims are not merely private

affairs. When federally created rights are at issue,

the public has a strong interest in ensuring that the

statutes establishing those rights are properly con-

strued and applied. Initially, the Court held that

claims under federal statutes were not arbitrable at

all, at least in part because the standard of review

might be inadequate. In Wilko v. Swan, 346 U.S.

427 (1953), overruled by Rodriguez de Quijas uv.

Shearson/American Express, Inc., 490 U.S. 477, 484

(1989), the Court held that a customer’s claim

against a broker under § 12 of the Securities Act of

1933 was not subject to arbitration, suggesting, inter

‘alia, that the standard of review of an arbitration

award might be inadequate to correct legal error by

the arbitrators. See 346 U.S. at 436-437 (“Power to

vacate an award is limited. ... [T]he interpretations

of the law by the arbitrators in contrast to manifest

disregard are not subject, in the federal courts, to ju-

dicial review for error in interpretation.”).

Three decades later, the Court changed its view

of the adequacy of arbitration to resolve disputes un-

der federal statutes — and the adequacy of judicial

review to correct arbitral misinterpretation. In Mit-

subishi Motors Corp. v. Soler Chrysler-Plymouth, 473

U.S. 614 (1985), the Court held that a claim under

the Sherman Act was subject to international arbi-

tration. The Court stated that, “[b]y agreeing to ar-

bitrate a statutory claim, a party does not forgo the

substantive rights afforded by the statute; it only

submits to their resolution in an arbitral, rather

than a judicial, forum.” Jd. at 628. The Court ac-

knowledged the United States’ interest in the appli-

cation of its law, but stated that the arbitrators

OT wy bk

would be obliged to apply American antitrust law (id.

at 636-637) and that “the national courts of the

United States will have the opportunity at the

award-enforcement. stage to-ensure that the legiti-

mate interest in the enforcement of the antitrust

laws has been addressed.” Jd. at 638.

The Court applied the principles of Mitsubishi to

domestic arbitration in McMahon, which held that

claims under the Securities Exchange Act of 1934

and RICO were arbitrable. The Court again empha-

sized that a party’s substantive rights under the

statutes would be the same in arbitration as in court.

482 U.S. at 229-230 (citing Mitsubishi). In response

to the plaintiffs stated concern that arbitrators

might not follow the law, the Court assured the

plaintiff that the courts would make certain that

they did: “[A]lthough judicial scrutiny of arbitration

awards necessarily is limited, such review is suffi-

cient to ensure that arbitrators comply with the re-

quirements of the statute.” Id. at 232.

The principles of Mitsubishi and McMahon were

reiterated in Gilmer, which held that claims under

the Age Discrimination in Employment Act were

subject to arbitration. The Court rejected Gilmer’s

suggestion that judicial review of arbitral decisions

would be inadequate, stating that judicial review

would be “sufficient to ensure that arbitrators com-

ply with the requirements of the statute at issue.”

500 U.S. at 32 n.4 (internal quotations omitted)

(quoting McMahon).

Thus, in holding that federal statutory claims

were arbitrable, the Court heavily relied upon its de-

termination that parties would have the same rights

in arbitration as in court, and its expressed belief

that judicial review of arbitral decisions would be

“sufficient to ensure” that arbitrators properly inter-

preted and applied the statutory mandates. That as-

sumption is now being challenged.

2. The Fourth Circuit’s decision in this

case is inconsistent with McMahon

and Gilmer and, if allowed to stand,

will undermine the critical assump-

tions’ upon which McMahon and

Gilmer were premised.

The Fourth Circuit held in this case that courts

must affirm good faith arbitral misinterpretations of

federal statutes because the courts may decide only

“whether the arbitrator did his job — not whether he

did it well, correctly or reasonably.” App. 7a. If that

standard is applied, the most critical assumptions

underlying this Court’s decisions in McMahon and

Gilmer have proven to be false. If those assumptions

are false, then the entire basis for the Court’s hold-

ing that federal statutory claims are arbitrable has

been called into question.

The Court’s holding that statutory claims are ar-

bitrable depended upon two assumptions: (1) a party

who agrees to arbitrate statutory claims does not

forgo his or her substantive rights under the statute,

but only agrees to have those rights determined in a

different forum (McMahon, 482 U.S. at 229-230;

Gilmer, 500 U.S. at 26); and (2) judicial review is suf-

ficient to ensure that arbitrators comply with the re-

quirements of the statute (McMahon, 482 U.S. at

232; Gilmer, 500 U.S. at 32 n.4). The Court could not

have reached the result it did in McMahon and Gil-

mer unless it believed those assumptions to be true.

But those assumptions are not true in the Fourth

Circuit. McMahon and Gilmer postulated a standard

of review that is “sufficient to ensure that arbitrators

comply with the requirements of the statute.” The

Fourth Circuit makes no effort to ensure arbitral fi-

delity to federal statutes. Rather than requiring the

arbitrator to comply with statutory mandates, the

Fourth Circuit will permit vacatur only if the arbi-

trator has “knowingly ignored” applicable law. App.

12a. That standard explicitly contemplates that

courts will uphold arbitrators’ misinterpretation of

federal statutes, even if their misinterpretation is

clear. It is obviously not sufficient — or intended — to

ensure that arbitrators correctly interpret or apply

federal statutes.

If the Fourth Circuit’s standard of review is al-

lowed to stand, then the Court’s assumptions in

McMahon and Gilmer were erroneous. If those as-

sumptions are wrong, then the fundamental basis for

those decisions has been undermined.

B. The Circuits Have Split On The Appro-

priate Standard Of Review Of Arbitral

Decisions Of Claims Under Federal Stat-

utes.

Following the Court’s decisions in McMahon and

Gilmer, the circuits have fundamentally split over

the appropriate standard of review of arbitral deci-

sions interpreting and applying federal statutes.

This split is at least partially due to the fact that the

Court has not addressed the issue in the 17 years

since Gilmer was decided, and has provided “virtu-

ally no guidance” to the lower courts. Calvin Sharpe,

Integrity Review of Statutory Arbitration Awards, 54

HASTINGS L.J. 311, 335 (2003) (“[The lower courts

have] entered the breach to supply content to the

standards in the face of virtually no guidance from

the Supreme Court.”).

Pet,

In the absence of guidance by the Court, the

lower courts have fashioned their own diverse — and

inconsistent — doctrines. The Second, Fourth ana

Eleventh Circuits have utilszed an extremely defer-

ential standard of review that mandates confirma-

tion of arbitral decisions misinterpreting federal

statutes, while two other circuits — the District of Co-

lumbia and Fifth Circuits — have construed McMa-

hon and Gilmer as requiring courts to correct such

misinterpretations.

1. The Fourth, Second and Eleventh

Circuits apply the same highly def-

erential standard to all arbitral

awards, regardless of whether they

involve claims under federal stat-

utes. :

At least three circuits make no effort to ensure

that federal statutory rights are sufficiently pro-

tected in arbitration. These circuits review arbitral

decisions involving federal statutes with the same

extreme deference that they apply to arbitral deci-

sions in other contexts, such as disputes under col-

lective bargaining agreements.or disagreements in-

volving interpretation of commercial contracts. In

this case, for example, the Fourth Circuit applied a

“manifest disregard” standard of review? it described

2 This Court identified “manifest disregard” as a ground for va-

cating an arbitral decision in Wilko, 346 U.S. at 436-437 (1953),

and again in First Options of Chicago, Inc. v..Kaplan, 514 U.S.

938, 942 (1995). In Hall Street Associates, LLC v. Mattel, Inc.,

No. 06-989 (March 25, 2008), the Court stated that the grounds

for vacating an arbitral decision specified in § 10 of the Federal

Arbitration Act (9 U.S.C. § 10) were exclusive. Slip op. at 9.

Section 10 of the Federal Arbitration Act does not identify

“manifest disregard” as a ground for vacatur. Although not re-

as “among the narrowest known to the law” (App.

7a), a phrase the court of appeals borrowed from its

decision in U.S. Postal Service v. American Postal

Workers Union, AFL-CIO, 204 F.3d 523, 527 (4th Cir.

2000), involving review of an arbitral decision under

a collective bargaining agreement. The court of ap-

peals simply ignored Petitioner's argument that

McMahon and Gilmer required the courts to ensure

arbitral fidelity to federal statutes by applying: a

heightened standard of review. By contrast, the dis-

trict court did address Petitioner’s argument on this

point, but, despite McMahon’s and Gilmer’s clear in-

struction, found “no basis in the law” for Petitioner’s

argument that a “more rigorous standard” should

apply when reviewing arbitral interpretations of fed-

eral statutes. App. 19a n.1.

jecting “manifest disregard” as a standard of review, Hall Street

suggested that Wilko used the phrase as a collective or short-

hand term for the statutory grounds. Slip op. at 8. The Ninth

Circuit reached the same conclusion in Kyocera Corp. v. Pru-

dential-Bache Trade Servs., Inc., 341 F.3d 987 (9th Cir. 2003)

(en banc). In Kyocera, the Ninth Circuit held that the statutory

grounds for vacatur were exclusive, but also acknowledged that

arbitral awards could be vacated if the arbitrator manifestly

disregardéd the law or if the award was “completely irrational.”

341 F.3d at 997 (quoting French v. Merrill Lynch, Pierce, Fen-

ner & Smith, Inc., 784 F.2d 902, 906 (9th Cir. 1986)). Kyocera

explained that these standards were encompassed within

§ 10(a)(4) of the Federal Arbitration Act, which authorizes vaca-

tur if arbitrators “exceeded their powers.” 341 F.3d at 997. The

Sixth Circuit reached a similar conclusion in Federated De-

partment Stores, Inc. v. J.V.B. Indus., Inc., 894 F.2d 862, 866

(6th Cir. 1990) (“Arbitrators do not exceed their authority

unless they display a manifest disregard of the law.”). See also

Comedy Club, Inc. v. Improv West Associates, 502 F.3d 1100

(9th Cir. 2007) (post-Kyocera decision partially vacating arbitral

award for “manifest disregard” where arbitrator misconstrued

state statute).

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Similarly, the Second Circuit expressly rejected

the argument that courts must be more rigorous in

reviewing arbitrators interpretation and application

of public laws than their resolution of private con-

tract disputes. In GMS Group, LLC v. Benderson,

326 F.3d 75 (2d Cir. 2003), the court of appeals de-

clined to construe McMahon and Gilmer as requiring

courts to ensure arbitral compliance with federal

statutes. It characterized the statements in McMa-

hon and Gilmer regarding judicial review as mere

dicta, and asserted that “the Court neither implied

that a more stringent standard of review should be

applied to federal statutory claims, nor differentiated

between federal statutory claims and common law

claims.” 326 F.3d at 80.

The Eleventh Circuit reached the same conciu-

sion in Brown v. ITT Consumer Financial Corp., 211

F.3d 1217 (11th Cir. 2000), in which it reviewed an

arbitral decision rejecting a claim under Title VII.

Holding that arbitration awards “will not be reversed

due to an erroneous interpretation of law by the arbi-

trator,” the court of appeals confirmed an arbitral

decision in favor of the defendant because the plain-

tiff did “not assert that this alleged error was inten-

tional or that the arbitrator made a conscious deci-

sion not to follow the appropriate legal standard.”

211 F.3d at 1223.

The courts have recognized that the highly defer-

ential standard apnlied by the Second, Fourth and

Eleventh Circuits results in confirmation of plainly

erroneous decisions. As one court acknowledged: “In

accordance with the Second Circuit’s rulings on the

subject, this court has repeatedly refused to overturn

arbitral awards on the ground of manifest disregard

even if the decision reached by the arbitrator is

clearly erroneous.” Chisholm v. Kidder, Peabody As-

set Management, Inc., 966 F. Supp. 218, 223

(S.D.N.Y. 1997).

2. The District of Columbia and Fifth

Circuits apply a heightened stan-

dard of review for arbitral decisions

involving federal statutes.

The District of Columbia and Fifth Circuits have

taken a very different view of their responsibilities to

ensure that arbitrators correctly interpret and apply

federal statutes.

In Cole v. Burns International Security Services,

105 F.3d 1465 (D.C. Cir. 1997), the plaintiff brought

a Title VII action against his employer. The district

court ordered the parties to arbitrate pursuant to an

arbitration provision in the employment contract.

The court of appeals affirmed, and engaged in an ex-

tensive discussion of the standards applicable to that

arbitration. The court of appeals “categorically re-

jectfed]” the suggestion that the law governing arbi-

tration under collective bargaining agreements

would apply to arbitration of federal statutory claims

(id. at 1473), explaining that arbitrations under col-

lective bargaining agreements occupied a unique

place in the law (id. at 1473-1477).

After analyzing McMahon and Gilmer, the D.C.

Circuit concluded that this Court’s decisions regard-

ing arbitrability of federal statutory claims rested on

two critical assumptions: (1) th-* a party agreeing to

arbitrate statutory claims does not forgo substantive

rights afforded by the statute; and (2) that judicial

review is sufficient to ensure arbitral compliance

with statutory requirements. “These twin assump-

tions regarding the arbitration of statutory claims

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are valid only if judicial review under the ‘manifest

disregard of the law’ standard is sufficiently rigorous

to ensure that arbitrators have properly interpreted

and applied statutory law.” 105 F.3d at 1487. Thus,

the court of appeals concluded, “the courts are em-

powered to review an arbitrator’s award to ensure

that its resolution of public law issues is correct.” Id.

‘ In Williams v. Cigna Financial Advisors Inc., 197

F.3d 752 (1999), the Fifth Circuit held that review of

an arbitral decision under the Age Discrimination in

Employment Act must include a determination of the

legal correctness of the arbitrators’ application of the

statute. The Fifth Circuit noted that this Court

based its decision in Gilmer on “crucial assumptions

or predictions” — the same assumptions identified by

the District of Columbia Circuit in Cole. 197 F.3d at

760. On this basis, the Fifth Circuit held, the as- |

sumptions enunciated in Gilmer demanded meaning-

ful judicial review of arbitral awards interpreting

and applying federal statutes:

The Supreme Court’s assumptions and pre-

dictions in Gilmer assign heavy responsibili-

ties to arbitrators and the federal courts. ...

The federal district courts and courts of ap-

peals are charged with the obligation to exer-

cise sufficient judicial scrutiny to ensure that

arbitrators comply with their duties and the

requirements of the statutes. ... Accord-

ingly, the judicial review of arbitral adjudica-

tion of federal statutory employment rights

under the FAA and the “manifest disregard

of the law” standard “must be sufficient to

ensure that arbitrators comply with the re-

quirements of the statute” at issue. Gilmer,

500 U.S. at 32 n. 4 (quoting Shear-

ee gs 4g Pe ee

son/American Express, 482 U.S. at 232); see

Cole, 105 F.3d at 1487.

197 F.3d at 760-761.

Some years later, the Fifth Circuit reached the

same conclusion in Carter v. Countrywide Credit In-

dustries, Inc., 362 F.3d 294 (5th Cir. 2004), a dispute

involving the FLSA. In that case, the court of ap-

peals affirmed a district court decision compelling

arbitration of an FLSA claim over the plaintiffs’ ob-

jection. In response to the wlaintiffs’ concern that the

arbitrator might not award them statutorily man-

dated attorney’s fees, the Fifth Circuit cited Williams

and noted that “if an arbitrator failed to award fees

he or she should have under the statute [plaintiffs]

‘would have an effective remedy in federal court.” Id.

at 299 n.1.

3 The Dunlop Commission (a commission jointly appointed by

the Secretaries of Labor and Commerce) reached a similar con-

clusion. While favoring arbitration to resolve claims under fed-

eral employment laws, the Commission strongly recommended

that arbitral decisions applying these laws be subject to judicial

review for legal error:

Judicial review of arbitrator rulings must ensure

that the arbitration decision reflects an appropri-

ate understanding and interpretation of the rele-

vant legal doctrines. While a reviewing court

should defer to an arbitrator’s fact findings so

long as they have substantial evidentiary basis,

the reviewing court’s authoritative interpretation

of the law should bind arbitrators as much [as] it

now binds administrative agencies and lower

courts.

U.S. Commission on the Future of Worker-Management Rela-

ions — Final Report 58 (1994), available at http://

digitalcom mons. ilr.cornell.edu/key_workplace/2.

The decisions of the District of Columbia Circuit

in Cole and the Fifth Circuit in Williams and Carter

are irreconcilable with the standards enunciated by

the Fourth Circuit in this case as well as the Second

and Eleventh Circuits in GMS and Brown. The

Fourth, Second and Eleventh Circuits apply a stan-

dard of review that explicitly permits arbitral misin-

terpretation and misapplication of federal statutes.

Those circuits have ignored or distinguished the

Court’s admonitions in McMahon and Gilmer. By

contrast, the District of Columbia and Fifth Circuits

regard this Court’s assumptions in McMahon and

Gilmer as critical elements of those decisions. and

therefore insist on heightened judicial scrutiny of ar-

bitral decisions under federal statutes.

C. The Fourth Circuit’s Decision Has En-

: couraged -— And, If Permitted To Stand,

Will Continue To Encourage — Arbitral 4

Misapplications Of Federal Statutes. =

By upholding the arbitrator’s erroneous: refusal

to apply the written consent requirement of FLSA

§ 16(b), the court of appeals has already encouraged

further arbitral misapplications of the FLSA and

other federal statutes. If permitted to stand, the :

Fourth Circuit’s decision will result in an expansion &

of such misapplications because there is no effective

means to correct them.

Legal error that goes uncorrected expands expo-

nentially. That has already begun to happen with —~ a

respect to the arbitrator’s error in this case. After 4

the district court’ refused to vacate the arbitrator’s 3

decision, at least two other arbitrators hearing unre- 4

lated FLSA claims relied on the district court’s deci- a

sion in this case to certify “opt out” classes in FLSA

actions, asserting that the written consent require-

. 26

ment of FLSA § 16(b) does not apply in arbitration.

See App. 58a-59a. Now that the Fourth Circuit has

affirmed the district court’s decision, it may fairly be

expected that other arbitrators will view the Fourth

Circuit’s decision as a blanket permission to disre-

gard the written consent requirement of § 16(b) in

FLSA arbitrations. Under the standard of review

applied in the Fourth Circuit, these decisions must

all be confirmed. The result will be a fracturing of

what heretofore had been an unbroken line of au-

thority requiring the application of § 16(b) in FLSA

actions and a wholesale disconnect between FLSA

litigation (where the written consent requirement of

§ 16(b) is unquestionably mandatory) and FLSA ar-

bitrations (where the written consent requirement of

§ 16(b) will be at best optional). There will thus be

one law for FLSA litigation and a completely differ-

ent law for FLSA arbitrations. This is an inevitable

result of the court of appeals’ refusal to review the

arbitrator’s decision for legal error.

The same problem is likely to arise in the future

under other federal statutory schemes as well. Just

as one plainly erroneous but uncorrectable arbitral

decision interpreting the FLSA has already spawned

similar erroneous decisions in other arbitrations, so

too will future uncorrected erroneous arbitral deci-

sions interpreting other federal statutes likely ex-

pand unabated by any judicial restraint.

D. The Present Case Is An Ideal Vehicle

For Deciding The Question Presented

Because The Result Would Be Different

Under The Correct Standard Of Review.

This is a particularly appropriate case to decide

the question presented because the result in this

case would be different if the Fourth Circuit had ap-

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plied the appropriate standard of review. Had the

court of appeals reached the legal issue involved, it

would have had to determine that the arbitrator mis-

interpreted the FLSA in a manner that (a) frustrates

‘clear congressional policy, (b) makes the FLSA stat-

ute of limitations impossible to apply, and (c) de-

prives non-consenting class members of their statu-

tory rights.

1. Congress adopted the written con-

sent requirement for public policy

purposes to carefully balance the in-

terests of employees and employers.

The FLSA written consent requirement that the

arbitrator rejected was not arbitrarily chosen, nor

was it selected for convenience or ease of application.

Congress enacted the written consent requirement

for specific public policy purposes in a careful effort

to protect the interests of both employers and em-

ployees. That policy decision may not be overruled

by an arbitrator who believes that his policy choices

are better suited to implement the statute than the

“disfavored” policy choice (App. 35a) enacted into law

by Congress.

The history of FLSA § 16(b) is well known, and

has been discussed in a number of published deci-

sions.

Congress enacted the FLSA in 1938. Among

other things, the FLSA required employers to pay

employees one and one-half times the employees’

hourly rate of pay for hours worked in excess of forty

hours per week. 29 U.S.C. § 207.

In 1946, this Court decide 1 Anderson v. Mount

Clemens Pottery Co., 328 U.S. 680 (1946), which sub-

stantially expanded the scope of compensable time

under the FLSA. In the seven months following the

Mount Clemens decision, nearly 2,000 FLSA class ac-

tions were filed against employers. De Asencio v. Ty-

son Foods, Inc., 342 F.3d 301, 306 (8d Cir. 2003).

Congress responded to the torrent of litigation

following Mount Clemens by passing the Portal-to-

Portal Act, Pub. L. No. 80-49, ch. 52, reprinted in

United States Code Congressional Service (Laws of

80th Cong., 1st Sess., 1947) at 81-87. Congress’s ex-

pressed concern was that, without the Act, liability

under the FLSA “would bring about the financial

- ruin of many employers... ; the credit of many em-

ployers would be seriously impaired; [and] the courts

of the country would be burdened with excessive and

needless litigation and champertous practices would

be encouraged.” Id. at 81-82.

The Portal-to-Portal Act legislatively overruled

Mount Clemens. Congress also sought to avoid fu-

ture “excessive and needless litigation and champer-

tous practices” by prohibiting “opt out” class actions.

The Portal-to-Portal Act thus added the written con-

sent requirement now contained in § 16(b). Jd. at 85.

Congress added the written consent requirement

to § 16(b) “for the purpose of limiting private FLSA

plaintiffs to employees who asserted claims in their

own right and freeing employers of the burden of

representative actions.” Hoffman-La Roche, Inc. v.

Sperling, 493 U.S. 165, 173 (1989); see also Cameron-

Grant v. Maxim Healthcare Services, Inc., 347 F.3d

1240, 1248 (11th Cir. 2003) (purpose of § 16(b) writ-

ten consent requirement was to “prevent[] large

group actions, with their vast allegations of liability,

from being brought on behalf of employees who had

no real involvement in, or knowledge of, the lawsuit”

(citation and internal quotations omitted)).

As the Third Circuit has recognized, “mandating

an opt-in class or an opt-out class is a crucial policy

decision” (De Asencio, 342 F.3d at 311) that “pro-

foundly affects the substantive rights of the parties

to the litigation” (id. at 310). Congress enacted the

written consent requirement “to strike a balance to

maintain employees’ rights but curb the number of

lawsuits.” Jd. at 306. Thus, Congress allowed em-

ployees to sue on behalf of others similarly situated,

but consciously restricted the class to individuals

who expressly consented in writing to join the action.

This effort to strike a balance is clearly a substantive

policy decision made by Congress. As the Secretary

of Labor noted in her amicus brief, the arbitrator’s

decision to substitute his own policy preferences for

those of Congress — and the courts’ refusal to vacate

it — “threatens to upset the litigation balance deli-

cately but expressly set by Congress.” 2006 WL

1911678 *19-*20.

The arbitrator attempted to justify his pursuit of

his personal policy preference for a larger class of

plaintiffs by characterizing Congress’s written con-

sent requirement as merely “procedural.” This char-

acterization was essential to the arbitrator’s holding

because McMahon and Gilmer emphasize that par-

ties do not surrender their statutory rights by agree-

ing to arbitrate, and the arbitrator’s determination

that the parties (including the unnamed class mem-

bers) had “waived” their rights under § 16(b) was

based solely on the fact that the parties had agreed

to arbitrate — not upon any provision of the arbitra-

tion agreement. But the written consent require-

ment of § 16(b) is not a mere “procedural” device to

be discarded at will — it reflects a conscious policy de-

cision by Congress designed to protect the interests

of both employers and employees, a policy decision

that the arbitrator was not free to reject.

2. It is impossible to apply the FLSA

statute of limitations without the

written consent requirement.

The written consent requirement of § 16(b) is so

embedded in the FLSA that the statute of limitations

for absent class members cannot be calculated with-

out it. The FLSA expressly provides that, “in the

case of a collective or class action instituted under

the Fair Labor Standards Act,” the statute of limita-

tions for each absent class member does not cease to

run when the action is filed — it ceases to run only

“on the subsequent date on which [the class mem-

ber’s] written consent is filed in the court in which

the action was commenced.” 29 U.S.C. § 256(b).

An arbitral attempt to avoid the written consent

requirement is thus impossible without ripping apart

the entire fabric of the FLSA. If an arbitrator dis-

penses with the written consent requirement, then

the arbitrator must also concoct a completely new

method of calculating the statute of limitations — a

method that would directly violate 29 U.S.C.

§ 256(b).4

The written consent requirement of § 16(b) is

thus an integral part of the entire congressional

scheme for enforcing the FLSA. It cannot be ignored

4 The arbitrator in this case apparently assumed that the stat-

ute of limitations for absent members of the “opt out” class he

certified would cease to run at the time the original arbitration

proceeding was filed. That assumption is contradicted by the

unambiguous language of 29 U.S.C. § 256.

ow Ce Se

without completely upsetting the entire structure

carefully designed by Congress.

3. The arbitrator’s attempt to bind non-

consenting class members violates

the FLSA and raises serious due

process concerns.

The arbitrator's avoidance of the written consent

requirement of FLSA § 16(b) presents serious due

process concerns because he purported to bind non-

consenting class members, notwithstanding uniform

case law stating that class members in an FLSA ac-

tion cannot be bound unless they have filed written

consents pursuant to § 16(b). These concerns fur-

ther demonstrate why the written consent require-

ment of FLSA § 16(b) must apply in arbitration.

If the written consent requirement of § 16(b)

means anything, it means that no purported class

“representative” may represent an employee’s inter-

ests in an FLSA action unless the employee affirma-

tively authorizes that representation. Accordingly,

the courts have uniformly held that unnamed mem-

bers of an FLSA collective action are not bound by,

nor may they benefit from, any determination in the

action unless they file written consents. McElmurry

v. U.S. Bank N.A., 495 F.3d 1136, 1139 (9th Cir.

2007) (In an FLSA collective action “only those plain-

tiffs who expressly join the collective action are

bound by its results.”); Whalen v. W.R. Grace & Co.,

56 F.3d 504, 506 n.3 (38d Cir. 1995) (““[U]nder § 16(b)

... NO person will be bound by or may benefit from a

judgment unless he or she has affirmatively ‘opted

into’ the class by filing a written consent with the

court.”); LaChapelle, 513 F.2d at 288 (“[Njo person

will be bound by or may benefit from judgment

unless he has affirmatively ‘opted into’ the class; that

is, given his written, filed consent.”); Schmidt uv.

Fuller Brush Co., 527 F.2d 532, 536 (8th Cir. 1975)

(quoting LaChapelle); Woods v. New York Life Ins.

Co., 686 F.2d 578, 580 (7th Cir. 1982) (in an FLSA

collective action, “the class member must opt in to be

bound”). As the Secretary of Labor’s amicus brief

noted, the written consent requirement “protects

employees in a fundamental way” by ensuring that

they are not bound by a decision unless they have

expressly agreed to be bound. 2006 WL 1911678

*18.

In this case, the arbitrator purported to bind the

absent class members — and to authorize purported

representatives to act on their behalf — without their

express consent, notwithstanding the unambiguous

language of § 16(b) and a consistent line of judicial

decisions saying that this cannot be done. This as-

sumption of authority over non-consenting individu-

als implicates the “principle of general application in

Anglo-American jurisprudence that one is not bound

by a judgment in personam in a litigation in which

he is not designated as a party or to which he has not

been made a party by service of process.” Ortiz v. Fi-.

breboard Corp., 527 U.S. 815, 846 (1999). That is

particularly the case here, where Congress has ex-

pressly affirmed that principle in unequivocal terms

by providing that absent class members may not be

parties to an action unless they expressly consent in

. writing.

The arbitrator has thus purported to do some-

thing that cannot be done — bind non-consenting

members of the class in violation of their express

statutory right ‘not to be bound. The patently futile

nature of this effort is further reason why the arbi-

trator’s decision is erroneous.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

PETER J. GREGORA DAN HIMMELFARB

LAURA W. BRILL Counsel of Record

Trell & Manella LLP ROBERT P. DAVIS

1800 Avenue of the Stars TAMARA S. KILLION

Los Angeles, CA 90067 Mayer Brown LLP

(310) 277-1010 1909 K Street, NW

HENRY L. PARR, JR. Washington, DC 20006

DAVID H. Koysza (202) 263-3000

Wyche, Burgess,

Freeman and

Parham, P.A.

Post Office Box 728

Greenville, SC 29602 |

(864) 242-8200

Counsel for Petitioner

APRIL 2008

APPENDICES

FET OE OTE BY LOI ET NTE EE ee NS Pe ON PU en ee TE ea TG

Fine eg ie ee ES Pere TA Oa a FO ae eS NR SRE

APPENDIX A |

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

LONG JOHN SILVER’S RESTAURANTS, INC.;

LONG JOHN SILVER’, INC.,

Plaintiffs-Appellants,

Vv.

ERIN COLE: NICK KAUFMAN; VICTORIA

MCWHORTER,

Defendants-Appellees.

SECRETARY OF LABOR,

Amicus Supporting Appellants.

NO. 06-1259

Appeal from the United States District Court for the

District of South Carolina, at Greenville.

Henry F. Floyd, District Judge.

(6:05-CV-03039-HFF)

ARGUED: DECEMBER 6, 2007

DECIDED: JANUARY 28, 2008

Before MICHAEL and KING, Circuit Judges, and

Catherine C. BLAKE, United States District Judge

for the District Of Maryland, sitting by designation.

Affirmed By Published Opinion. Judge King Wrote

The Opinion, In Which Judge Michael And Judge

Blake Joined.

OPINION

KING, Circuit Judge:

‘Long John Silver’s Restaurants, Incorporated,

and Long John Silver’s, Incerporated (collectively,

“LJS”), seek appellate relief from a January 20, 2006

ruling of the district court declining to vacate an ar-

bitration award. Long John Silver’s Rests., Inc. v.

Cole, No. 6:05-cv-03039-HFF (D.S.C. Jan. 20, 2006)

(the “Opinion”).1 In the underlying arbitration pro-

ceedings, three former LJS managerial employees,

Erin Cole, Nick Kaufman, and Victoria McWhorter

(the “Claimants”), contended that LJS violated the

Fair Labor Standards Act (the “FLSA”) by failing to

pay. tnuem and other LJS employees the overtime

compensation required by law. In September 2005,

the arbitrator ruled, in his Class Determination Par-

tial Final Award (the “Class Award”),? that the “opt-

in” class certification provision of the FLSA (codified

at 29 U.S.C. § 2 16(b)) did not apply in the arbitra-

tion proceedings. The arbitrator also ruled that,

pursuant to the controlling arbitration agreement,

the arbitration proceedings were governed by the

“opt-out” class certification provision of the Supple-

mentary Rules for Class Arbitrations of the Ameri-

can Arbitration Association (the “AAA Class Rules”).

In this appeal, LJS contends that the district

court erred in two respects when it declined to vacate

the Class Award: first, in failing to recognize that the

arbitrator, in making the Award, had manifestly dis-

regarded controlling legal principles; and, second, in

1 The Opinion can be found at J.A. 281-91. (Citations herein to

“J.A. ” refer to the contents of the Joint Appendix filed by

the parties in this appeal.)

2 The Class Award can be found at J.A. 47-71.

failing to recognize that the arbitrator had exceeded

the scope of his authority. As explained below, we

reject these contentions and affirm.

As background in this matter, the Claimants are

former managers and managerial assistants of vari-

ous LJS restaurants. They maintain that LJS has

been engaged in unlawful employment practices,

subjecting them and others to payroll deductions and

salary givebacks to cover losses in LJS’s restaurant

operations. These unlawful practices, according to

the Claimants, violated the FLSA and its regulations

on overtime pay, and resulted in insufficient com-

pensation being paid to them and others.

In 1995, LJS initiated a mandatory arbitration

procedure and commenced the use of a uniform arbi-

tration agreement fer disputes with its employees.

The arbitration agreement prepared for this purpose

was executed by each of the Claimants. The agree- .

ment provides, in pertinent part, that

[a]Jny arbitration will be administered by the

American Arbitration Association under its

commercial arbitration rules (except as modi-

fied herein) ... The arbitrator shall apply the

substantive law (and the laws and remedies,

if applicable), in the state in which the claim

arose, or federal law, or both, uepending

upon the claims asserted.

J.A. 84.

The AAA Class Rules empower an arbitrator to

make certain determinations about whether an arbi-

tration agreement permits an arbitration proceeding

Cee ee Me ee ee eS Mel ee aad Se Re Ee Cae ee Pee ae OE ee ey Eee Nae Tee Se ee ee ee my eA ne ee ee

to be conducted as a class arbitration. In the event

that the agreement so permits, the arbitrator must

. decide whether the arbitration should proceed as a

class arbitration by considering the criteria enumer-

ated in the AAA Class Rules, as well as “any law or

agreement of the parties the arbitrator determines

applies to the arbitration.” See AAA Class Rule 4(a).

When the arbitrator has decided that the arbitration

should proceed as a class arbitration, he iaust set

forth the basis for that decision in a Class Determi-

nation Award, which defines the class, the: notice to

be given, and the grounds for exclusion of class

members. See AAA Class Rule 5. AAA Class Rule 7

provides that a final awara on the merits of a class

arbitration must define the class “with specificity,”

including “those who have elected to opt out of the

class.”

Like the AAA Class Rules, § 16(b) of the FLSA

contains a provision governing class action proceed-

ings. Unlike the “opt-out” provision of the AAA Class

Rules, however, § 16(b) of the FLSA is an “opt-in”

class provision, providing that

{njo employee shall be a party plaintiff to any

. action [under the FLSA] unless he gives

his consent in writing to become such a party

and such consent is filed in the court in

which such action is brought.

29 U.S.C. § 216(b) (the “FLSA § 16(b) provision” or

the “§ 16(b) provision”).

On January 21, 2004, Claimants Cole and Kauf-

man initiated an arbitration proceeding before the

AAA, on behalf of themselves and others similarly

situated. They alleged that LJS, in failing to prop-

7 oie pean iy ty One BONER Gk Niet hath Oe on st Rie atch oa a as Cate i Ca Re eh eC SAS Au rk aaa Sa To AE a

erly compensate them, had violated the FLSA.3 On

March 4, 2005, the Claimants filed an amended arbi-

tration complaint with the AAA, adding McWhorter

as a representative claimant and seeking class certi-

fication pursuant to the AAA Class Rules. LJS then

secured rulings from the arbitrator on certain class

certification issues, ultimately leading to this appeal.

First, on June 15, 2004, the arbitrator made a

clause construction award, ruling that the arbitra-

tion agreement did not preclude a class arbitration

proceeding. Although the award did not decide

whether a class would ultimately be certified in the

arbitration proceeding, LJS promptly initiated suit

in the district court, seeking to vacate the award.

LJS made two assertions in its lawsuit: (1) that the

FLSA § 16(b) provision permitting employees to pur-

sue collective actions is a procedural right, and thus

had been waived by the arbitration agreements; and

(2) that conducting a class arbitration proceeding is

inconsistent with the FLSA. On September 15, 2005,

the district court dismissed that suit for lack of sub-

ject matter jurisdiction. See Cole v. Long John Sil-

ver’s Rests., Inc., 388 F. Supp. 2d 644 (D.S.C. 2005).4

3 A related civil action involving similar compensation issues

had been previously initiated by a former LJS managerial em-

ployee in a Tennessee federal court. That case was dismissed in

2004 because the claims were deemed subject to arbitration. See

Johnson v. Long John Silver's Rests., Inc., 320 F. Supp. 2d 656

(M.D. Tenn. 2004), affd, 414 F.3d 583 (6th Cir. 2005). After the

Tennessee lawsuit was filed, Johnson sought certification of an

“opt-in” class pursuant to the FLSA § 16(b) provision. LJS op-

posed any such class certification, however, and moved to com-

pel arbitration.

4 LJS initially pursued an appeal in this Court of the district

court’s dismissal of its challenge to the clause construction

coat nak Cg Steet mC = Ring ge ¥t FE ONS Yee aL bere OTS Pde ae eT eC, See EM Po FL Pp i mest ee

BLN Re ae PET ae Rie a Sem ee Paes ie op See, aan Lee OOD I RE DEA RT ee AMAR RPh ay

bite Dis aC am iw ee a ee te tS

Next, on September 19, 2005, the arbitrator is-

sued its Class Award, which LJS challenges in this

appeal. In the Class Award, the arbitrator ruled

that the Claimants could serve as representative

plaintiffs in an “opt-out” class arbitration proceeding

— the class being composed of current and former

LJS managerial employees having potential FLSA

claims. In rendering the Class Award, the arbitrator

was called upon to address the apparent conflict be-

tween the “opt-in” aspect of the FLSA § 16(b) provi-

‘ gion, on the one hand, and the “opt-out” aspect of the

AAA Class Rules, on the other. In the Class Award,

the arbitrator decided that, because “there is no evi-

dence of any congressional intent” to make the right

to the “opt-in” requirement of the § 16(b) provision

nonwaivable, the FLSA did not preclude enforcement

of the parties’ agreement to arbitrate pursuant to the

AAA Class Rules. Class Award 7. Accordingly, the

arbitrator applied the “opt-out” provisions of AAA

Class Rule 7. |

On October 25, 2005, LJS filed suit in the Dis-

trict of South Carolina, seeking to vacate the Class

Award, and challenging the arbitrator’s ruling that

the FLSA § 16(b) provision was not controlling. On

January 20, 2006, the district court filed its Opinion

denying LJS’s request for relief. By the Opinion, the

court rejected LJS’s contention that the FLSA dispo-

sitively provides employees a nonwaivable substan-

award. On January 10, 2007, the appeal was dismissed at LJS’s

request.

- 5 The Secretary of Labor made an amicus curiae submission to

the district court supporting LJS’s motion to vacate. More par-

ticularly, she asserted that the FLSA § 16(b) provision consti-

tuted substantive law and was nonwaivable.

Ay PR Py MS SE ARES PR DR ic Le he ey EF Os Le ON eo EN Bee RET REL PND. ee A NE pee ee TO, Te eee te, Ae re OMe ee

tive right to “opt-in” proceedings under the § 16(b)

provision. Having determined that no “clear principle

of law bound the arbitrator in this case,” the court

further ruled that the arbitrator had satisfied his ob-

ligation to render a reasoned award, that he had not

manifestly disregarded the applicable legal princi-

ples, and that he had instead “thoroughly analyzed

the relationship of [the § 16(b) provision] and the ar-

bitration agreement.” Opinion 7. Indeed, as the

court recognized, because the arbitration agreement

“undoubtedly gave the arbitrator authority to invoke

equity, it provided him with the power to render any

relief which a court could award.” Id. at 9. LJS has

appealed, and we possess jurisdiction pursuant to 28

U.S.C. § 1291.

IT.

In conducting an appellate review of a district

court’s refusal to vacate an arbitration award, we are

obliged to accept findings of fact that are not clearly

erroneous and to assess conclusions of law de novo.

See First Options of Chicago, Inc. v. Kaplan, 514 U.S.

938, 947-49 (1995). Importantly, any judicial review

of an arbitration award is “extremely limited,” and

is, in fact, “among the narrowest known to the law.”

U.S. Postal Serv. v. Am. Postal Workers Union, AFL-

CIO, 204 F.3d 523, 527 (4th Cir. 2000) (internal quo-

tation marks omitted). As we have consistently rec-

ognized, a reviewing court is entitled to “determine

only whether the arbitrator did his job — not

whether he did it well, correctly, or reasonably, but

simply whether he did it.” Mountaineer Gas Co. v.

Oil, Chem. & Atomic Workers Intl Union, 76 F.3d

606, 608 (4th Cir. 1996). “{A]s long as the arbitrator

is even arguably construing or applying the contract:

and acting within the scope of his authority, that a

Bs B

; “f

court is convinced he committed serious error does

not suffice to overturn his decision.” United Paper-

workers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S.

29, 38 (1987). |

An arbitration award may be vacated if it fails to

draw its essence from the controlling agreement.

United Paperworkers Int'l Union, 484 U.S. at 36. And

such an award may be overturned if it flowed from

an arbitrator’s manifest disregard of the applicable

law. Apex Plumbing Supply, Inc. v. U.S. Supply Co.,

142 F.3d 188, 193 (4th Cir. 1998). In order to secure

judicial relief on such grounds, it must be shown that

the arbitrator, in making his ruling, was “aware of

the law, understood it correctly, found it applicable

to the case before [him], and yet chose to ignore it in

propounding [his] decision.” Remmey v. PaineWeb-

ber, Inc., 32 F.3d 143, 149 (4:h Cir. 1994). As one of

our sister circuits has explained, an arbitrator does

not act in manifest disregard of the law unless: “(1)

the applicable legal principle is clearly defined and

not subject to reasonable debate; and (2) the arbitra-

tor[ ] refused to heed that legal principle.” Merrill

Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d

418, 421 (6th Cir. 1995).

ITI.

LJS makes two contentions in support of its posi-

tion on appeal. First, it maintains that the arbitra-

tor’s certification of an “opt-out” class resulted from a

manifest disregard of the applicable legal principles,

and that, in particular, the arbitrator disregarded

the FLSA § 16(b) provision. Second, LJS asserts that

the arbitrator exceeded the scope of his authority in

certifying an “opt-out” arbitration class, rather than

applying the “opt-in” aspect of the § 16(b) provision.

In pursuing these contentions, LJS asserts, as a

threshold matter, that an employee cannot be made

a party to an FLSA-related civil proceeding without

his consent, and that this statutory right, being both

fundamental and substantive, is not waivable.6 The

apparent conflict between the AAA Class Rules and

the FLSA § 16(b) provision would necessarily be re-

solved in favor of an “opt-in” procedure if the consent

requirement of § 16(b) is a substantive right, not

waivable by an arbitration agreement. As the Su-

preme Court noted in Gilmer v. Interstate/Johnson

Lane Corp., parties who agree to arbitrate a statu-

tory claim “do[ ] not forgo the substantive rights af-

forded by the statute,” but rather “submit[ ] to their

resolution in an arbitral, rather than a judicial, fo-

rum.” 500 U.S. 20, 26 (1991) (internal quotation

marks omitted). It is well-settled that a contract to

arbitrate an FLSA claim will not be enforceable if

“Congress has evinced an intention to preclude a

waiver of judicial remedies for the statutory rights at

issue.” Green Tree Fin. Corp.-Ala. v. Randolph, 531

U.S. 79, 90 (2000). Therefore, in order to prove that

the “opt-in” requirement of the FLSA could not be

waived by the parties’ agreement to arbitrate under

the AAA Class Rules, LJS must demonstrate that

Congress expressly intended to preclude a waiver of

the “opt-in” procedure for class arbitration of FLSA

claims, by reference to “the text of the FLSA, its leg-

islative history, or an ‘inherent conflict” between the

AAA Class Rules and the FLSA’s “underlying pur-

6 In an amicus curiae submission in this appeal, the Secretary

of Labor supports LJS’s position, asserting, as she did in the

district court, that the “written consent” provision of the FLSA

§ 16(b) provision is a substantive and unwaivable right.

10a

poses.” Adkins v. Labor Ready, Inc., 303 F.3d 496,

506 (4th Cir. 2002); see also Gilmer, 500 U.S. at 26.

LJS has failed to make any such demonstration

here. For example, LJS posits that, in the FLSA §

16(b) provision’s mahdate that “consent [must be]

filed in the court in which such action is brought,”

the word “court” must be accorded its general mean-

ing, which, LJS asserts, would include an arbitration

forum. LJS also references a portion of the legisla-

tive history of the § 16(b) provision — particularly,

the remarks of Senator Donnell during a 1947 Sen-

ate debate on FLSA amendments that included the §

16(b) provision — suggesting that it would be “un-

wholesome” to allow suits under the FLSA which are

“not brought with the actual consent or agency of the

individuals for whom an ostensible plaintiff filed the

suit.” Br. of Appellants 27-28 (citing Arrington v.

Nat Broad. Co., 531 F. Supp. 498, 502 (D.D.C. 1982)

(quoting 93 Cong. Rec. 2182 (1947)));? see also Hoff-

mann-La Roche, Inc. v. Sperling, 493 U.S. 165, 173.

(1989) (observing that Congress enacted the § 16(b)

7 Senator Donnell’s remarks during the proposed 1947 debate

on the FLSA amendments included the following:

“Obviously, . . . this is a wholesome provision, for it

is certainly unwholesome to allow an individual to

come into court alleging that he is suing on behalf of

10,000 persons and actually not have a solitary per-

son behind him, and then later on have 10,000 men

join in the suit, which was not brought in good faith,

was not brought by a party in interest, and was not

brought with the actual consent or agency of the in-

dividuals for whom an ostensible plaintiff filed the

suit.”

Arrington, 531 F. Supp. at 502 (quoting 93 Cong. Rec. 2182

(1947)).

"3 Pa rn. w % Pig 4 - ‘

i oi chp ont ciao ant eile eter ka inure Pate a ea bap rey arpa ede St Be eo

PC AAITE EEE SL RIG CON AG Se OR POSEN LET RANE IX NOR SIMPL cP OSM E E S

lla

provision “for the purpose of limiting private FLSA

plaintiffs to employees who asserted claims in their

own right and freeing employers of the burden of

representative actions”). Although LJS’s references

to the text and legislative history of the FLSA reas-

sure us of Congress’s intention that the “opt-in” pro-

cedure should apply in arbitration as in court pro-

ceedings, they fail to also convince us that Congress

expressly intended that the “opt-in” procedure could

not be waived by the parties’ agreement to an alter-

nate procedure.

We also are not persuaded by LJS’ s reliance on a

prior decision of this Court. LJS highlights a footnote

in Adkins v. Labor Ready, Inc., in which we observed

that the fee provision in § 16(b) (a provision LJS con-

tends is analogous to the “opt-in” aspect of the §

16(b) provision) is a substantive right retained by

parties in arbitration. See 303 F.3d at 502 n.1. LJS

acknowledges, however, that no court has explicitly

ruled that the “opt-in” provision of the § 16(b) provi-

sion creates a substantive, nonwaivable right. Put

simply, it is far from clear that the “opt-in” aspect of

the § 16(b) provision is such a nonwaivable substan-

tive right. Having so concluded, we turn to LJS’s

contentions that the arbitrator manifestly disre-

% By contrast, the Claimants point out that the Supreme Court

has recognized that employees are entitled to waive their right

to collective action by agreeing to mandatory arbitration. See

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991)

(upholding compulsory arbitration agreement under the Age

Discrimination in Employment Act of 1967). If the right to ini-

tiate a collective action can be waived, as the Claimants assert,

it may be inferred that an “opt-in” procedure relating to any

such right (here, the FLSA § 16(b) provision) can also be

waived.

iad

BEG LN. ae APT CE ES OND te ae te

12a

garded the applicable legal principles and exceeded

the scope of his authority in rendering the Class

Award.

In its first contention, LJS-asserts that the dis-

trict court erred in refusing to vacate the Class

Award on the basis that the arbitrator had mani-

festly disregarded applicable federal law — namely,

the FLSA § 16(b) provision’s “opt-in” requirement. As

discussed above, any judicial review of an arbitration

award must be an extremely narrow exercise. See

United Paperworkers Intl Union, AFL-CIO v. Misco,

Inc., 484 U.S. 29, 38 (1987); U.S. Postal Serv. v. Am.

Postal Workers Union, AFL-CIO, 204 F.3d 523, 527

(4th Cir. 2000); Mountaineer Gas Co. v. Oil, Chem. &

Atomic Workers Intl Union, 76 F.3d 606, 608 (4th

Cir. 1996). In order to overturn an arbitration award

on the basis of the arbitrator’s manifest disregard of

the law, the party pursuing that effort must sustain

a heavy burden, and is obliged to show that the arbi-

trator knowingly ignored applicable law when ren-

dering his decision. Remmey v. PaineWebber, Inc., 32

F.3d 143, 149 (4th Cir. 1994).

In making the Class Award, the arbitrator spe-

cifically assessed the possibility that “Congress [had]

evinced an intention to preclude a waiver of judicial

remedies” for the consent mandate of the FLSA §

_16(b) provision. Class Award 7 (citing Gilmer, 500

U.S. at 26). He concluded, however, that “there is no

evidence of any congressional intent which would

impose an opt-in provision upon a class action being

privately arbitrated,” and thus that such a procedure

remained waivable. Jd. After careful analysis, the

Pes Ka PP VO TT aN HE DS RUA Er RE PORN SE GT EIT a LB ENR IE NS TY SOC AMEE ON 1 RNC 2S pS

13a

arbitrator then ruled in the Class Award that the use

of an “opt-out” class in the class arbitration proceed-

ing was proper. According to the arbitrator, LJS’s

pretrial maneuvering in the Johnson case, see supra

note 3, had occasioned a substantial delay in the

processing of potential claims, and had threatened

the resolution of legitimate claims, such that the

adoption of the “opt-in” procedure of the § 16(b) pro-

vision “would now create a fundamental unfairness”

by “significantly reduc{ing] the class population in

derogation of fundamental FLSA objectives.” Class

Award 10. On this point, the arbitrator emphasized

that equity would be better served by safeguarding

the rights of potential claimants “sidelined’ during

the progress of this case.” Id. at 11. And the arbitra-

tor reasoned that the “opt-out” procedure best

achieved FLSA’s objective of permitting states (and

by analogy, private parties) to “a opt higher stan-

dards than those established in the [FLSA],” as well

as the Federal Arbitration Act’s preference for “the

procedural rules defined by private contract.” Jd. at

In rejecting LJS’s challenge to the Class Award,

the district court acknowledged the uncertainty as to

whether Congress intended to apply the FLSA §

16(b) provision’s “consent in writing” requirement in

arbitration proceedings, and concluded that the arbi-

trator was not, therefore, bound by any “clear princi-

ple of law” in rendering the Award. Opinion 5. The

court further observed that the parties had been ac-

corded “a full and fair opportunity to present their

competing views of the relevance of FLSA § 16(b) to

the arbitration proceedings,” and that the Class

Award was based on a reasonable interpretation of

the FLSA and the Federal Arbitration Act. Id. at 7.

‘14a

On this recore, we are similarly convinced that.

the arbitrator “did his job.” See Mountaineer Gas, 76

F.3d at 608. Because there is a debatable contention

that the FLSA § 16(b) provision did not explicitly

overrule the “opt-out” feature of the arbitration

agreement, the arbitrator did not ignore the FLSA or

any other applicable legal principles when he certi-

fied en “opt-out” class in the Class Award, and LJS

has thus not sustained its heavy burden to demon- |

_ strate otherwise. See Remmey, 32 F.3d at 149. The

district court accordingly did not err in declining’ to

vacate the Class Award on this basis.

LJS’s second appellate contention is that the dis-

- trict court erred in failing to vacate the Class Award

on the ground that the arbitrator exceeded the scope

of his authority under the arbitration agreement by

certifying an “opt-out” arbitration class. On this

point, LJS argu-s that the plain terms of the arbitra-

tion agreement required the arbitrator to “apply the

‘federal law’ regarding the claim at issue, provide

‘the same protections as a court of law,’ and award

only that relief available in a ‘court of law.” Br. of

Appellants 47. More specifically, LJS relies on spe-

cific language drawn from the arbitration agreement.

See J.A. 81 (“If you win, the arbitrator can award you

anything you might seek through a court of law.”);

id. at 84 (“The arbitrator shall apply the substantive

law (and the laws of remedies, if applicable) in the

state in which the claims arose, or federal law, or

both ....”). LJS asserts that, by approving an “opt-

out” class, the arbitrator ignored the terms of the

agreement requiring him — in exercising the author-

ity he derived therefrom — to apply the “opt-in” re-

quirement of the FLSA § 16(b) provision.

15a

The district court deemed LJS’s argument on

this point unpersuasive, observing that the arbitra-

tor’s decision in the Class Award to certify an “opt-

out” class was simply a matter of contract interpreta-

tion, and thus well within his authority. The central

question, as framed by the arbitrator and the court, .

was whether the arbitration agreement that incorpo-

rated the AAA Class Rules authorized the use of an

“opt-out” procedure. With regard to the proposition

that the arbitration agreement unambiguously re-

quired the arbitrator to adhere to the FLSA § 16(b)

provision, the court disagreed, observing that the ar-

bitrator was forced to interpret the agreement pre-

cisely “because of its ambiguity as to whether § 16(b)

or the AAA rules would apply to class certification.”

Opinion 9 (emphasis in original).

Indeed, the first provision of the arbitration

agreement upon which LJS relies — that an em-

ployee is entitled in arbitration to anything he might

seek in a court of law — appears only in a portion of

the agreement generally describing the benefits of

arbitration. And the second provision quoted by LJS

— requiring the arbitrator to apply substantive law

— could not have limited the arbitrator’s authority in

the manner L.JS proposes, when, as we have already

explained, it is far from clear that the “opt-in” proce-

dure of the FLSA § 16(b) provision creates a substan-

tive, nonwaivable right.9

® LJS also asserts that the arbitrator, in making the Class

Award, relied on his personal notions of right and wrong, thus

exceeding the scope of his authority under the arbitration

agreement. In support of this proposition, LJS relies on the ar-

bitrator’s statement in the Class Award that, in light of LJS’s

“endless procedural machination ... in Johnson and ... in this

arbitration,” “[e]quity is better served by preserving the rights

In making our extremely limited review of the

Class Award, we must, in these circumstances, agree

with the district court that the arbitrator did not ex-

ceed the scope of his authority by certifying an “opt-

out” class. See Am. Postal Workers Union, 204 F.3d

at 527. As the district court recognized, the arbitra-

tor “did what he was supposed to do: he analyzed two

conflicting interpretations of the arbitration agree-

ment and made a reasoned decision as to why an opt-

out class should be certified.” Opinion 9. The court

thus correctly ruled that it lacked the authority to

vacate the Class Award, which was “at the very

most” only an arguable contravention of the arbitra-

tor’s powers. Id. at 10. In these circumstances, we

are obliged to affirm the district court. —

IV.

Pursuant to the foregoing, we reject the appellate

contentions of LJS with respect to the Class Award

and affirm the Opinion of the district court.

AFFIRMED

of potential claimants who have been ‘sidelined’ during the pro-

gress of this case.” Class Award 10-11. In this regard, we agree

with the district court that LJS’s assertion is contradicted by

the fact that the arbitrator relied on settled principles in sup-

port of his reliance on equity, and by the provision of the arbi-

tration agreement empowering the arbitrator to “award any re-

lief which a court could award.” Opinion 9.

ee age i Oe ET a eS Se SMS ST OD teers NE ace, See ty ee

iva:

APPENDIX B |

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF SOUTH CAROLINA

GREENVILLE DIVISION

LONG JOHN SILVER’S RESTAURANTS, INC.

AND LONG JOHN SILVER’S, INC.,

Movants;

Vv.

ERIN COLE, NICK KAUFMAN, AND VICTORIA

MCWHORTER,

Respondents.

CIVIL ACTION NO. 6:05-3039-HFF

MEMORANDUM OPINION AND ORDER .

I. INTRODUCTION 3

This is an action to vacate a class determination

award of an arbitrator who determined that Respon-

dents would be representative plaintiffs of an opt-out =

class. The Court has jurisdiction over this action a

pursuant to 28 U.S.C. § 1332. Currently pending be- a

fore the Court is Movants’ motion to vacate the arbi-

trator’s decision. For the reasons stated below, the

Court will deny the motion.

Il. FACTUAL AND PROCEDURAL HISTORY

Respondent Erin Cole, Respondent Nick Kauf-

man, and Respondent Victoria McWhorter (collec-

tively “Respondents”) are former employees of

18a

Movant Long John Silver’s Restaurants, Inc. and

Movant Long John Silver's, Inc. (collectively

“Movants”). During the tenure of Respondents’ em-

ployment, Movants instituted a mandatory arbitra-

tion procedure covering certain disputes between

themselves and their employees. Subsequently, on

December 19, 2003, Respondents initiated a collec-

tive arbitration proceeding before the American Ar-

bitration Association (AAA) in which they alleged

that Movants had violated the Fair Labor Standards

Act (“FLSA” or “the Act”), 29 U.S.C. § 201 et seq., by

failing to pay Respondents and similarly-situated

employees overtime pay which they were due. Ini-

tially, the arbitrator necessarily conducted a “clause

construction hearing” in which he determined that

the arbitration agreement between Movants and Re-

spondents permits Respondents to bring their claims

in a class proceeding. Movants, arguing that FLSA

§16(b)’s provisions permitting employees to bring col-

lective actions are procedural and waivable, asked

this Court to vacate the arbitrator’s clause construc-

tion award. The Court, however, dismissed the action

for lack of jurisdiction. Cole v. Long John Silvers Res-

taurants, Inc., 388 F.Supp.2d 644 (D.S.C. 2005).

While Movants’ motion to vacate the arbitrator’s

clause construction award was pending before the

Court, the arbitrator issued a class determination

partial final award in which he determined that Re-

spondents would be representative plaintiffs in an

opt-out class which would be composed of current

and former employees of Movants who have potential

FLSA claims. Movants now bring this action request-

ing that the Court vacate the arbitrator’s decision to

certify an opt-out class.

SRE EN IE Pie TSE ON LR Ce OR CSTR OE Be Pee ON TREY CREE SCRE Me amt gs

Y tote Nye ot EP PI OPE Et MAB ed ME eM e ree Weve 7k - ve ee S is Shee 0. 7

19a

lil. STANDARD OF REVIEW

It is well settled that a court’s review of an arbi-

tration award “is among the narrowest known to the

law.” United States Postal Service v. Am. Postal

Workers Union, AFL-CIO, 204 F.3d 523, 527 (4th Cir.

2000) (internal quotation marks omitted). “A court

sits to ‘determine only whether the arbitrator did his

job—not whether he did it well, correctly, or reasona-

bly, but simply whether he did it.” Id. (quoting

Mountaineer Gas Co. v. Oil, Chem. & Atomic Workers

Intl Union, 76 F.3d 606, 608 (4th Cir. 1996)). “[A]s

long as the arbitrator is even arguably construing or

applying the contract and acting within the scope of

his authority, that a court is convinced he committed

serious error does not suffice to overturn his deci-

sion.” United Paper-Workers Intl Union, AFL-CIO v.

Misco, Inc., 484 U.S. 29, 38 (1987). Thus, the Court’s

review of the arbitrator’s decision to certify an opt-

out class is extremely narrow in scope.!

IV. DISCUSSION

Movants assert two bases in support of their mo-

tion to vacate the arbitrator’s class determination

award. First, Movants contend that the arbitrator

acted in manifest disregard of the law and, second,

Movants claim that the arbitrator exceeded the scope

of his authority. The Court finds that neither argu-

ment supports vacatur.

1 The Court finds no basis in the law for Movants’ suggestion

that the Court review the arbitrator’s award under a more rig-

orous standard, and the Court declines to undertake such a re-

view here.

SE Se ore ee ee OR Oem ne et ae oe

20a

A. Manifest Disregard of the Law

A court’s authority to vacate actions of an arbi-.

trator which are in manifest disregard of the law is

clearly established. E.g., Apex Plumbing Supply, Inc.

v. U.S. Supply Co., 142 F.3d 188, 193 (4th Cir. 1998);

Gallus Invs., L.P. v. Pudgie’s Famous Chicken, Ltd.,

134 F.3d 231, 233-34 (4th Cir. 1998). In exercising

this authority, however, a court must proceed cau-

tiously, as a “court’s belief that an arbitrator misap-

plied the law will not justify vacation of an arbitral

award.” Remmey v. PaineWebber, Inc., 32 F.3d 143,

149 (4th Cir. 1994). Instead, a court may vacate an

award only where a party has shown “that the arbi-

trator[ ] [was]: aware of the law, understood it cor-

rectly, found it applicable to the case before [him],

and yet chose to ignore it in propounding [his] deci-

sion. Id. (citing National Wrecking Co. v. Intl Bhd. of

Teamsters, Local 731, 990 F.2d 957, 961 (7th Cir.

1993); Folkways Music Publishers, Inc. v. Weiss, 989 -

F.2d 108, 111-12 (2d Cir. 1993)). Persuasive author-

ity also indicates that a court’s authority to vacate is

contingent upon the law allegedly ignored bearing

the status of a clearly established governing princi-

ple. See, e.g., Halligan v. Piper Jaffray, Inc., 148 F.3d

197, 202 (2d Cir. 1998) (noting that in order to vacate

a court must find that “the law ignored by the arbi-

trators was well defined, explicit, and clearly appli-

cable to the case.”); Merrill Lynch, Pierce, Fenner &

Smith, Inc. v. Jaros, 70 F.3d 197, 202 (6th Cir. 1995)

(“[A]n arbitration panel does not act in manifest dis-

regard of the law unless (1) the applicable legal prin-

ciple is clearly defined and not subject to reasonable

debate; and (2) the arbitrators refused to heed that

legal principle[.]”); Health Services Management

Corp. v. Hughes, 975 F.2d 1253, 1267 (7th Cir. 1992)

(“(T]here must be something beyond and different

2la

from mere error in law or failure on the part of the

arbitrators to understand or apply the law; it must

be demonstrated that the majority of the arbitrators

deliberately disregarded what they knew to be the

law in order to reach the result they did[.]”); Merrill

Lynch, Pierce,. Fenner & Smith, Inc. v. Bobker, 808

F.2d 930, 933-34 (2d Cir. 1986) (“The error must

have been obvious and capable of being readily and

instantly perceived by the average person qualified

to serve as an arbitrator. Moreover, the term ‘disre-

gard’ implies that the arbitrator appreciates the exis-

tence of a clearly established governing legal princi-

ple but decides to ignore or pay no attention to it.”).

In the instant case, Movants contend that FLSA

§ 16(b) requires that collective actions brought under

the Act be certified using opt-in class procedures.

Movants base this contention on the following lan-

guage from § 16(b):

An action to recover [under the Act] may be

maintained against any employer in any fed-

eral or state court of competent jurisdiction

by any one or more employees for and in be-

half of himself or themselves and other em-

ployees similarly situated. No employee shall

be a party plaintiff to any such action unless

he gives his consent in writing to become

such a party and such consent is filed in the

court in which such action is brought.

In Movants’ view, this section of the FLSA provides

employees with a substantive right to consent to any

action filed on their behalf under the Act. This right,

Movants maintain, cannot be waived in an arbitra-

tion agreement and, thus, continues to apply with

full force in private arbitration proceedings.

22a

This language cannot bear the import that

Movants assign to it. As an initial matter, Movants

fail to present—and the Court fails to find—any au-

thority for the proposition that the “consent in writ-

ing” requirement applies in arbitration proceedings.

This absence of authority, taken alone, weakens

Movants’ argument that the arbitrator disregarded a

clear governing principle of law. In addition, the lan-

guage of the FLSA itself lacks the clarity which

Movants would read into it. While § 16(b) does man-

date the use of an opt-in procedure in class actions, it

speaks of those actions and the written consent of

class members being filed in “court[s] of competent

jurisdiction.” Although the statutory reference to

“court[s]” does not entirely foreclose the possibility

that the statute’s requirements might apply in arbi-

tration, it supplies uncertainty to the question of

whether Congress intended the consent in writing

requirement to govern. arbitration proceedings as

well as actions in court. In the face of the uncertainty

of the statute’s reach and the lack of interpretative

authority on point, the Court cannot say that a clear

-principle of law bound the arbitrator in this case.

Even if FLSA § 16(b) qualifies as a clearly estab-

lished principle requiring the use of opt-in classes in

arbitration, the arbitrator did not disregard or ignore

the statute in making his class determination award.

Indeed, the arbitrator explicitly referred to § 16(b) in

his award and balanced Movants’ argument that the

statute requires an opt-in class against Respondents’

position that the arbitration agreement incorporates

AAA rules providing for an opt-out class. (Mov. Mem.

Supp. M. Vac. Ex. 1 at 4-11.) Further, the arbitrator

specifically noted Movants’ argument that the con-

sent in writing requirement is a substantive right

and referenced Supreme Court precedent which rec-

SERCO RS el SEF TPE re Soe aN ee UE BEN) free ape VO Gamage, Pee ee are 5 ae a

LSS OUS Seal hy . ; ‘ + ies “ <e ena ; 4 ae pt deh |

23a

onciles the need tc preserve substantive statutory

rights with the necessity that parties be held to their

agreements to arbitrate. Jd. at 8 (citing Gilmer v. In-

terstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991).

The arbitrator then went on to find that Congress

had not “evinced an intention to preclude a waiver”

of the judicial remedies and procedures provided in

§ 16(b) (as is required before those remedies become

non-waivable in arbitration). Id. Then, he analyzed

the “salutary objectives” of the FLSA and to note

that the FLSA permits states and localities to adopt

higher standards than the federal standards of the

Act. Id. at 9. The arbitrator also found instructive

the Federal Arbitration Act’s (FAA) preference for

procedural rules adopted by the parties to an arbi-

tration agreement. Jd. Finally, the arbitrator noted

that Movants’ earlier attempt to classify as proce-

dural and waivable that portion of § 16(b) which pro-

vides for collective actions weakens Movants’ argu-

ment that § 16(b)’s written consent requirement is

substantive and non-waivable. Jd. at 10-11. After

conducting this analysis, the arbitrator ruled that

the class-opt-in procedures of § 16(b) do not apply in

private arbitration proceedings when the arbitration

agreement and AAA rules provide for an opt-out

class.

{n sum, the arbitrator rendered a reasoned

award which, far from ignoring the applicability of

the FLSA, thoroughly analyzed the relationship of

FLSA § 16(b) and the arbitration agreement. That

the Court may have reached a different conclusion—

or even that the arbitrator may have made a serious

error of law—is of no consequence. Remmey, 32 F.3d

at 149 (noting that vacatur is not justified by a

court’s belief that an arbitrator misapplied the law);

Upshur Coals Corp. v. United Mine Workers District

BE CS COLA rE Oe EE RN LE a RESP ey et ae ere SEG ae Oe TOD OAM or PANS TOPE ele ee, We ROLE AT SPM SE IS ee Mee aS

24a |

31, 933 F.2d 225, 229 (4th Cir. 1991) (“An arbitration

award is enforceable even if the award resulted from

a misinterpretation of law, faulty legal reasoning, or .

erroneous legal conclusion.”) (internal quotation

marks omitted); 1 Domke on Comm. Arb. § 38:9

(2002) (“An arbitration award will not be overturned

for manifest disregard of the law even where the ar-

bitrator makes-a serious error in his understanding ©

of the law or in applying the law.”). Movants and Re-

spondents had a full and fair opportunity to present

their competing views of the relevance of FLSA §

16(b) to the arbitration proceedings. The arbitrator,

faced with “substantial conflicting” interpretations of

the FLSA “which could support a decision for either

of the parties,” rendered his award. Remmey, 32 F.3d

at 150. As a result, the Court “cannot simply assume

that fhe] ignored the law in reaching fhis] conclu-

sions.” Id.; see also Mountaineer Gas, 76 F.3d at 608.

B. Scope of Arbitrator’s Authority

Movants next contend that the arbitral award

should be vacated because the arbitrator exceeded

the scope of his powers in rendering the award. Al-

though the FAA provides courts with the authority to

vacate an award on this ground, 9 U.S.C. § 10(a)(4),

the courts exercise that authority in a limited fash-

ion. Indeed, “as long as the arbitrator is even argua-

bly construing or applying the contract and acting

within the scope of his authority,” courts should re-

frain from vacating his decision. Am. Postal Workers

Union, 204 F.3d at 527. Moreover, the Court of Ap-

peals has emphasized that courts should vacate an

arbitrator’s decision as exceeding the scope of his au-

thority only when the arbitrator “dispense[s] his own

brand of industrial justice[,]” id. (citing United

Steelworkers of Am. v. Enterprise Wheel & Car Corp.,

Ft NONE ae CPE EOC TNE, ao Ree aby aes pig So ier clk a ae a FE See ep eR Ae? me paniagh ie pee is eee

SL RE NS OT Ree UTE TOD WPF SI Ree PEE NC RO Me OO AT OTe Te tel ey Mae ALR See Me eee iy st PODS ee A rae BE fhe eee OER OT MOND te ee Sates 9,

25a

363 U.S. 593, 597 (1960)), “ignores the unambiguous

language [of the contract] chosen by the parties,” id.

(citing Mountaineer Gas, 76 F.3 d at 610), or “base[s]

his award on his own personal notions of right and

wrong,” Island Creek Coal Co. v. Dist. 28, United

Mine Workers of Am., 29 F.3d 126, 129 (4th Cir.

1994) (citing Upshur Coals, 933 F.2d at 229).

Here, Movants assert that the arbitrator ex-

ceeded his powers by certifying an opt-out class de-

spite language in the arbitration agreement which

provides that an employee is entitled to “anything

fhe] might seek through a court of law” and that the

arbitrator “shall apply the substantive law ... in the

state in which the claim arose, or federal law, or both

.... (Mov. Mem. Supp. M. Vac. 19.) Movants also

contend that the arbitrator ignored an AAA rule

which requires the arbitrator to “consider ... any law

... the arbitrator determines applies to the arbitra-

tion.” Id. Thus, Movants argue, in ignoring these

provisions of the arbitration agreement, the arbitra-

tor rewrote the agreement and exceeded his author-

ity.

The Court finds this argument unpersuasive.

The arbitrator's decision to certify an opt-out class

was essentially a matter of contract interpretation.

As the arbitrator noted:

The issue is whether the agreement of the

parties which incorporates the Supplemen-

tary [AAA] Rules dictates an opt-out proce-

dure pursuant to the Rule 23 model or

whether Plaintiffs’ reliance upon the sub-

stantive provisions of the FLSA compels ad-

herence to FLSA procedural rules, particu-

larly the opt-in provisions of rule 16(b).

Ne ee a eS ET. ee a eee ee a ee ee ee ee ee ee eee Oe De Oe te ee ee ee oe

: 4 a Se tie OF eee TCA hag RT a Pee

. , sina sty

26a

(Mov. Mem. Supp. M. Vac. Ex. 1 at 5.) The arbitrator

further emphasized that he was merely interpreting

the parties’ arbitration agreement when he framed

the question before him as “whether the parties’ con-

tract has superseded the FLSA’s procedural re-

quirements.” Id. at 6.

The arbitrator was certainly correct in this view

of his role in the-instant dispute. Far from ignoring -

any unambiguous language of the arbitration agree-

ment mandating the certification of an opt-in class

based on § 16(b)’s requirements, the arbitrator was

forced to interpret the agreement because of its am-

biguity as to whether § 16(b) or the AAA rules would

apply to class certification. In doing so, the arbitrator

did not dispense his own brand of justice but simply

determined that the parties’ agreement favored the

use of an opt-out class under the AAA rules rather

than an opt-in class under § 16(b). Nor did the arbi-

trator create a new remedy for Respondents, as

Movants suggest. Instead, the arbitrator did what he

was supposed to do: he analyzed two conflicting in-

terpretations of the arbitration agreement and made

a reasoned decision as to hain an opt-out class should

be certified.

Movants’ suggestion that the arbitrator exceeded

the scope of his authority by injecting his own per-

sonal notions of right and wrong into the adjudica-

tive process must also be rejected. Despite his state-

ment that “[e]quity is better served” by certifying an

opt-out class, (Mov. Mem. Supp. M. Vac. Ex. 1 at 11),

the arbitrator did not exceed the bounds of his au-

thority under the arbitration agreement. First, the

arbitrator's reference to “equity” implies that he in-

voked equitable principles developed in caselaw (an

implication which is supported by the arbitrator’s ci-

278

tation to authority in support of his use of equity)

rather than any personal view of right and wrong.?

Second, the arbitration agreement undoubtedly gave

the arbitrator authority to invoke equity, as it pro-

vided him with the power to award any relief which a

court could award. The arbitrator, therefore, acted—

or at least arguably acted—within the scope of his au-

thority when he noted that equity supports the certi-

fication of an opt-out class.

Finally, even if Respondents have—at the very

most—raised an arguable issue as to whether the ar-

bitrator exceeded the scope of his powers, the Court

is without authority to vacate the arbitrator’s deci-

sion. Am. Postal Workers Union, 204 F.3d at 527

(holding that “as long as the arbitrator is even ar-

guably construing or applying the contract and act-

ing within the scope of his authority,” a court should

not vacate his decision). Therefore, the Court cannot

say that the arbitrator exceeded the scope of his au-

thority.

2 The arbitrator's reference to “fairness, efficiency, and due

process,” (Mov. Mem. Supp. M. Vac. Ex. 1 at 9), also indicates

that, in using the term “equity,” he referred to more than mere

personal belief in a just result.

3 The Court also rejects Movants’ argument that the. arbitrator

exceeded the scope of his powers by applying the stay and toll-

ing agreement entered in Johnson v. Long John Silver’s Res-

taurants, Inc., 320 F.Supp.2d 656 (M.D. Tenn. 2004). In es-

sence, Movants maintain that the arbitrator exceeded the scope

of his authority by applying the wrong statute of limitations to

the instant case. A legal or interpretative error by the arbitra-

tor, however, does not equate to an expansion of his powers be-

yond those delegated to him in the arbitration agreement. The

issue of the applicability of the Johnson stay to the present ar-

bitration proceedings, was clearly before the arbitrator, as

Movants themselves requested a ruling on this issue. Thus, the

28a

Vv. CONCLUSION

Based on the foregoing, and after a thorough re-

view of the record and the relevant law, the Court

concludes that the motion to vacate the arbitrator’s.

class determination award must be, and hereby is,

DENIED. All other pending motions are hereby ren-

dered MOOT.

IT IS SO ORDERED.

Signed this 20th day of January, 2006, in Spar-

tanburg, South Carolina.

_ Isi Henry F. Floyd

HENRY F. FLOYD

UNITED STATES DISTRICT JUDGE

arbitrator's ruling that the Johnson tolling agreement applied

here clearly fell within the scope of his authority.

29a

APPENDIX C

AMiRICAN ARBITRATION ASSOCIATION

EMPLOYMENT AND CLASS ACTION ARBITRA-

TION TRIBUNAL

KRIN COLE, NICK KAUFMAN, AND VICTORIA

McWHORTER, on behalf of themselves and on be-

half of all other members of the general public simi-

larly situated,

Plaintiffs,

vs.

LONG JOHN SILVER’S RESTAURANTS, INC.,

AND LONG JOHN SILVER’S, INC.,

Defendants.

AAA CASE 11 160 00194 04

CLASS DETERMINATION PARTIAL FINAL

, AWARD

Plaintiffs’ Motion for Class Certification prays

the Arbitrator:

1. To certify the above-captioned action as a class

action.

2. To certify an opt-out class of persons pursuant

to Rule 4 of the American Arbitration Association’s

(“AAA”) Supplementary Rules for Class Arbitrations,

defined as follows:

“All salaried restaurant managers in the

United States who are presently employed or

who were formerly employed by defendants

(“LJS”) from December 17, 1998 through Au-

gust 22, 2004.”

30a

3. To certify Plaintiffs Erin Cole, Nick Kaufman

and Victoria McWhorter as representatives of the

Class, and their counsel of record, Stewart, Estes &

Donnell, as counsel for the Class pursuant to Class

Arbitration Rule 5(b).

4. To direct that notice issue to the Class pursu-

ant to Class Arbitration Rule 6, and to require De-

fendants to pay the cost of providing notice to the

Class.

On or about June 15, 2004 the Clause Construc-

tion Award determined that the parties’ employment

contract “cannot be construed as prohibiting a class

or collective action under the FLSA.... “Pursuant to

Rule 3 of the Supplementary Rules for Class Arbitra-

tions (hereinafter Supplementary Rules), all proceed-

ings were stayed to permit either party ‘to move a

court of competent jurisdiction to confirm or vacate’

the Award.” Defendants did move the United States

District Court to vacate the award, but in the inter-

vening year there has been no response from the

Court.

Plaintiffs’ Motions for Class Certification was

filed on March 4, 2005. Prior to the adjudication of

class certification, Defendants sought the adjudica-

tion of three preliminary matters. The first is

whether the class determination phase should pro-

ceed under the procedural requirements set forth in

FLSA section 16(b) (specifically the “opt-in” require-

ments) or the Rule 23-type provisions prescribed in

the AAA Supplementary Rules. Second, Defendants

seek a ruling on whether the Stay and Tolling

Agreement (hereinafter “STA”) entered in the case of

Johnson vs. Long John Silver’s, Inc., case No. 3-01-

1526, U.S. District Court for the Middle District of

Tennessee (hereinafter “Johnson”) applies to this ar-

3la

bitration. Third, Defendants seek a ruling as to

whether the class determination phase is limited to

class members employed in South Carolina or

whether the class determination applies nationwide.

Plaintiffs objected to “taking up substantive is-

sues before resolution of the class certification issue

...” Because the issues raised by Defendants have a

direct impact upon the class certification issues (for

example, because notice to a prospective class will be

determined by ‘parameters and identity’ of the class),

it was determined to decide these issues as part of an

“omnibus” Class Certification Hearing. It was also

thought that because the Class Certification Award

is also subject to a minimum 30-day stay to permit a

motion in court “to confirm or vacate” the Award, a

determination of all related issues might attenuate

somewhat the piecemeal adjudication which has

characterized this litigation.

Defendants assert that because Plaintiffs are

seeking the substantive benefits of the FLSA, they

are bound to the procedural requirements of that

statute, particularly the “opt-in” provisions of section

16(b). Plaintiffs respond that by their Private Em-

ployment Contract, the parties have agreed to the

AAA Supplementary Rules, which incorporate Rule

- 23 as the appropriate procedural guideline.

Defendants point to the requirement of Rule 4(a)

that the Arbitrator “shall consider the circumstances

enumerated in Rule 4 and any law or agreement of

the parties the Arbitrator determines applies to the

arbitration.” Defendants’ brief emphasizes “shall

consider” and “any law”, urging the Arbitrator to “de-

ter” to FLSA’s procedural requirements.

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32a

Although the language of Rule 4(a) relied upon

by Defendants is advanced for the “purpose” of de-

termining “whether a class action may be main-

tained,” the rule does provide a focus for inquiry. De-

fendants emphasize the “law” to be considered. Rule

4(a), however, also requires the consideration of any

“agreement of the parties.”

The issue is whether the agreement of the par-

ties which incorporates the Supplementary Rules

dictates an opt-out procedure pursuant to the Rule

23 model or whether Plaintiffs’ reliance upon the

substantive provisions of the FLSA compels adher-

ence to FLSA procedural rules, particularly the opt-

in provisions of rule 16(b).

Were Plaintiffs’ claims not tethered to a particu-

lar statute, it is clear that the opt-out provisions of

Rule 23 would obtain. As noted in Hyper-Touch, Inc.

vs. the Superior Court of San Mateo County, (2005)

128 Cal.App.4th 1527.

“It is not clear that anyone’s interests are

protected by imposition of the duty to ‘opt in’

prior to the establishment of liability. Requir-

ing plaintiffs to affirmatively ‘opt in’ will in-

evitably -- and sometimes significantly -- re-

duce the size of the class, and may therefore

be seen as simply ‘another device by which a

defendant could ‘clip away at the size of the

class through exclusion of unnamed plain-

tiffs” (citations omitted). At the same time,

reducing the class to those who acknowledge

receipt of actual notice by ‘opting in’.is not

necessarily in the interest of defendants, be-

cause it reduces the res judicata effect of a

judgment for the defendant and opens the

door to a great deal of redundant litigation,

33a

particularly where some members of the

class may have a substantial stake.”

_ Defendants invite the Arbitrator to “defer” to the

procedural requirements of the FLSA as would “a

federal judge applying the Federal Rules of Civil

Procedure.” This begs the question as to whether the

parties’ contract has superseded the FLSA’s proce-

dural requirements. If the agreement of the parties

prevails, then the Rule 23 model applies. Supple-

mentary Rule 5(c) provides that the “Class Determi-

nation Award shall state when and, how members of

the class may be excluded from the class arbitration.”

Rule 6 provides “the notice of class determination

must ... state ... that the Arbitrator will exclude

from the class any member who requests exclusion,

stating when and how members may elect to be ex-

cluded. Supplementary Rule 7 provides “the final

award shall . . describe those -who have elected to opt

out of the class.” The language of exclusion infers the

application of Rule 23.

The choice between an opt-in and an opt-out pro-

cedure is not abstract. The significant decline in the

number of probable class members has been noted.

Defendants also seek the benefit of a much more re-

strictive statute of limitations, which would also se-

verely limit the class.

In view of these consequences, some attention

must be paid to the context of the controversy. Plain-

tiffs originally sought to advance their FLSA claim

as a collective action in federal court (the Johnson

case). Defendants successfully sought the preemption

of those claims by invecation of those provisions of

the employment contract which compelled the #ri-

vate arbitration of the parties’ disputes within the

framework of the Supplementary Rules. It was De-

34a

fendants who sought the avoidance of the FLSA pro-

cedures by the substitution of AAA procedures. Hav-

ing succeeded in accomplishing a private litigation

unmoored from federal procedural rules, the claim

for a necessary adherence to the FLSA procedural

rules is unpersuasive. Indeed, the judicial preference

for the opt-out procedure is so universal that absent

compelling authority requiring adherence to the opt-

in procedure, there would be no inclination whatso-

ever to engraft that procedure upon a private arbi-

tration. No such compelling authority has been pre-

sented.

It has been noted that “by agreeing to arbitrate a

statutory claim, a party does not forego the substan-

tive rights afforded by the statute; it only submits to

their resolution in an arbitral rather than a judicial

forum (citations omitted).” Gilmer vs. Inter-

state/Johnson Lane Corporation, (1991) 500 U.S. 20,

26. Further, “having made the bargain to arbitrate,

the parties should be held to it unless Congress has

evinced an intention to preclude a waiver of judicial

remedies for the statutory rights at issue.” Ibid.

Here, there is no evidence of any congressional intent

which would impose an opt-in provision upon a class

action being privately arbitrated, where the conse-

quence would be to limit the population of intended

beneficiaries of the statute.

In federal court, Defendants have sought to em-

ploy the arbitration procedure set forth in the em-

ployment contract as a device for precluding the col-

lective action procedure of FLSA section 16(b). Plain-

tiffs here assert the same employment contract as a

basis for proceeding pursuant to AAA’s Rule 23 pro-

cedure. Both Defendants and Plaintiffs are correct

that the Arbitration Agreement and Supplementary

35a

Rules define the rights of the parties. Here, the con-

tractual preference for a Rule 23 opt-out requirement

is dispositive.

If fairness, efficiency and due process applicable

to the widest appropriate class be the criteria for de-

termination, then the Supplementary Rules as in-

corporated into the parties’ employment agreement

must prevail over the disfavored opt-in provisions

espoused by Defendants. The salutary objective of

the FLSA are advanced by the opt-out procedure.

Generally, “the FLSA permits states to adopt higher

standards than those established in the Act and pre-

empts state law in this area only to the extent that

state laws are less generous than the FLSA).” City of

Sidell, 25 Fed.Supp.2d, 727, 728 (E.D. LA. 1998). 29

U.S.C. section 218(a) expressly authorizes states and

municipalities to enact more favorable wage and

hour legislation than that encompassed by FLSA. By

analogy, it would seem that the parties to a private

employment contract could similarly accede to a pro-

cedural mechanism that is more inclusive in making

available the substantive benefits of the FLSA.

The preference for the procedural rules defined

by private contract is a basic objective of the FAA as

well. “Arbitration under the [FAA] is a matter of con-

sent, not coercion, and parties are generally free to

structure their arbitration agreement as they see fit.

Just as they may limit by contract the issues which

they will arbitrate, so too may they specify by con-

tract the rules under which that arbitration will be

conducted.” Volt Informati I,_ Inc. vs. Board of

Trustees, 489 U.S., 468 (1989) at page 479.

Had this case been permitted to proceed as a col-

lective action in Johnson, these issues would not

have arisen. By invoking their contractual rights, the

36a

parties have submitted to the procedural require-

ments of the contract. Critically, the pretrial maneu-

verings in Johnson and this arbitration have re-

sulted in protracted delays which would now create a

fundamental unfairness by the opt-in procedure

which, as noted, would significantly reduce the class

population in derogation of fundamental FLSA objec-

tives.

Defendants’ ultimate objective, of course, would

have been a preclusion of any but individually adju-

dicated claims. But for Green Tree Financial Corp.

vs. Bazzle, 539 U.S. 444 (2003) and the development

of case law disfavoring the use of adhesive employ-

ment contracts as a mechanism for precluding class

or collective actions, the strategy might have been

(and ultimately still might be) successful. Defen-

dants now complain that plaintiffs are “requesting

that the Arbitrator revive stale claims without any

reasoned, real or equitable basis.” To the contrary, it

has been the endless procedural machinations first

in Johnson and now in this arbitration which have

acted to jeopardize numerous potentially legitimate

claims. To some extent, it is the very procedural his-

tory of this case which has rendered ineffective the

opt-in procedures of the FLSA. Equity is better

served by preserving the rights of potential claim-

ants who have been “sidelined” during the progress

of this case. (See Advanced Micro Devices, Inc. vs.

Intel Corp., (1994) 9 Cal.4th 362, 374-375.

II.

Throughout these proceedings, plaintiffs have

expressed their reliance upon a Stay and Tolling

Agreement (STA) which was entered in the Johnson

case. Defendants urge that the STA applies only to

those who were formal parties in the Johnson case

37a

and is not applicable to this arbitration. The purpose

of the STA was to “facilitate” settlement negotiations

on a class-wide basis.

Each side avers the STA in Johnson must be in-

terpreted in accordance with its terms and without

resort to extrinsic evidence. Defendant’s search for

certainty focuses upon the first sentence of the STA:

“This stipulation ... is entered into ... by and be-

tween Kevin Johnson (“Johnson”) on behalf of him-

self and all putative class members in this action and

Long John Silver’s, Inc. ...” Defendants’ brief itali-

cizes and relies upon the words “in this action” urg-

ing that “this unambiguous contractual language

clearly limits the applicability of the STA to the

Johnson action.” Plaintiffs’ brief italicizes “all puta-

tive class members in this action”. Were this simply

a battle of italics, resort to extrinsic evidence might

indeed be required to unearth the parties’ mutual in-

tentions.

Within the context of the Johnson negotiations

for a class-wide resolution of the dispute through

mediation and recognizing that each side during the

pretrial phase of Johnson was seeking, for their own

respective benefit, an arbitral option to the Johnson

proceedings, it is the additional language of the STA

which demands attention.

The introductory paragraph acknowledges the

parties’ intention to “preserve the status quo while

they attempt to negotiate a settlement on a class-

wide basis.” Paragraph one of the actual stipulation

provides that “this action will be stayed pending set-

tlement negotiations ...”

Paragraph two provides:

38a

“The statute of limitations for the claims as-

serted in the complaint on behalf of Johnson

and members of the putative class (which

Plaintiffs define as any present and/or former

employee of LJS who now works and/or for-

merly worked as a salaried restaurant man-

ager for LJS from November 26, 1998 for-

ward, and who was classified as an exempt

Restaurant and/or Assistant Restaurant

General Manager (or salaried/exempt em-

ployee who performs or performed similar

jobs, however titled or classified)) is tolled

from December 17, 2002 until 30 days after

the date of the notice of termination of set-

tlement negotiations ...”

Paragraph two advances two purposes of the

STA. The first is to toll the statue of limitations as

described. The second is to define precisely the mem-

bers of the putative class as to whom the tolling

- agreement applies. The definition is clear and unam-.

biguous. It embraces a specifically classified group of

employees.

Paragraph five confirms that resolution of Plain-

tiffs’ claims by arbitration was a “defense” being ad-

vanced by Defendants, and that Defendants were not

waiving their objections to Plaintiffs’ proceeding as a

“class or collective action.” In that context, para-

graph five provided “that LJS may not assert a limi-

tations defense with respect to the tolling against

any member of the putative class that’s defined by

Plaintiffs in paragraph two above.”

Finally, Judge Wiseman’s opinion in Johnson,

adopted in toto by the Sixth Circuit in Johnson vs.

LONE. Jone. SEXSA SORAUrAnie..Ant.» 414 F.3d 583,

660 (2005) noted that “... the Magistrate Judge con-

39a

cluded that the Court would not take up any issues

regarding court supervised notice to class members

until the arbitration issue had been resolved,. reason-

ing that no prejudice to the class would result be-

cause of the tolling agreement.” The reference to toll-

ing applied to that class to whom notice would be re-

quired, namely that putative class referred to in

paragraph two of the STA. Presumably the Magis-

trate Judge did not intend that the tolling agreement

would obtain if Plaintiffs were successful in having

the matter adjudicated in federal court, but would

evaporate if the case proceeded as an arbitration.

The concern of the Magistrate Judge centered upon

potential prejudice to the class, not upon the forum

of ultimate adjudication.

Without the necessity for extrinsic evidence, it is

determined that in this arbitration, any claims as-

serted in the Johnson complaint on behalf of the de-

scribed putative class are tolled by the STA. The re-

sult would not be different based upon a considera-

tion of the extrinsic evidence adduced by either side.

Il.

A third preliminary content: n of Defendants is

that the scope of any class action must be limited to

persons employed by LJS in South Carolina. “Such a

limitation is necessary to avoid conflicts between ma-

terially different: versions of the Dispute Resolution

Program” existing in different states and locales and

further because the Clause Construction Award au-

thorizing a class action was “rooted in South Caro-

lina law,” where other jurisdictions, notably Okla-

homa, might have reached different determinations

(Respondents’ Opposition Brief, page 46).

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40a

Defendants further urge that the post-May 2001

versions of the Real Solution Program provide for an

arbitration venue “in or near the community where

you live,” a condition difficult to achieve for class

members living outside South Carolina.

That the Clause Construction Award was based

upon the South Carolina version of the Dispute Reso-—

lution Program is a fortuity based upon Plaintiffs’

choice of forum. It had been represented, however,

that the various iterations of the agreement were not

different in significant particulars. As to the conven-

ience factor, it is not necessarily to be anticipated

that class members would be attending arbitration

proceedings, and the right to opt out should satisfy

any individual concerns regarding convenience. Fi-

nally, the “representative proof model” of the sort es-

poused in Anderson vs. Mount Clemens Pottery

Company, 328 U.S. 680 (1946), and Bell vs. Farmers

Ins. Exchange, 115 Cal.App.4th 715, should attenu-

ate any problems of individual participation.

Defendants do not suggest that the policies and

practices of LJS here at issue are unique to South

Carolina or are significantly at variance in different

states. Nor do Defendants invoke any significant dis-

similarity among the various employment contracts

as relevant to the instant case. Apart from the refer-

ence to Turpin vs. Cross Country Bank, (WD Okla.,

April 4th, 2001), an unpublished trial court decision

which antedated Be & inancia TN

Bazzle, 539 U.S. 444 (2003), Defendants have ad-

duced no authority suggesting state law conflicts

which would impact a nationwide class action.

Nothing in the Clause Construction Award nor in

the facts adduced in this proceeding has provided

any persuasive rationale for limiting the putative

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class to those residing or employed in South Caro-

lina.

IV.

Having determined that the opt-in procedures of

the FLSA and Rule 23 are irreconcilable, that the

terms of the Arbitration Agreement dictate adher-

ence to Rule 23 and that the procedural history of

this litigation, commencing with Johnson, has re-

sulted in circumstances which would significantly

prejudice the putative class were FLSA Section 16(b)

to be employed, this opinion must now address those

“prerequisites to a class arbitration” or class certifi-

cation required by Rule 4 of the Supplementary

Rules.

Defendants invite a threshold inquiry into the

nature of the factual analysis required as a prerequi-

site to certification. Defendants urge that the Arbi-

trator “must look beyond the class-action pleadings”

and “vigorously” examine the factual bases asserted

in support of class certification. In contrast, plaintiffs

argue that “decision-makers may not conduct a pre-

liminary hearing into the merits in order to deter-

mine whether a suit should be maintained as a class

action.” (Plaintiffs’ Reply Memorandum, page 53, 54).

Plaintiffs rely upon Blackie vs. Barrack, 524 F.2d

891, 901 N.17 (9th Cir. 1975) for the proposition that

“the court is bound to take the substantive allega-

tions as true ... ” omitting reference to that part of

the footnote requiring the court to “require sufficient

information to form a reasonable judgment.”

Defendants rely upon Johnson vs. HBO Film

Management, Inc., 265 F.3d 178 (2001). Johnson was

a fraudulent marketing case where it was held “ap-

propriate to look beyond the Plaintiff's pleadings that

42a

alleged the Defendants made uniform oral and writ-

ten misrepresentations and determine whether the

record supported their claims.” Johnson, supra, page

186. In Johnson, plaintiffs alleged that defendant

had made “uniform oral and written misrepresenta-

tions” and that the prospectus itself was “evidence of

a uniform written misrepresentation made to all

plaintiffs.” From the “well-developed record,” the

trial court’s ruling was upheld that there was, in

fact, no uniformity or standardization of representa-

tions employed in soliciting customers and that such

an action “based substantially on oral rather than

written conversations is inappropriate for treatment

as a class action.” Johnson, page 190. As in Johnson,

here the issue of the extent of pre-certification fac-

tual inquiry dovetails somewhat with the issue of

predominance pursuant to Rule 23(b) (3) and Sup-

plementary Rule 4(b).

Defendants argue that:

1. Any individual claim “would necessarily in-

volve a highly individualized inquiry into actions

taken contrary to the plain language of LJS policy”

(Defendants’ Opposition Brief, page 2);

2. “The Arbitrator will not be able to rule that

LJS policy is per se unlawful under FLSA or that an

illegal company-wide practice was applied nation-

wide throughout all LJS restaurants ...” (Defen-

dants’ Opposition Brief, page 16);

3. Pursuant to LJS policy, individual employees

expressly authorized restitution on a case-by-case

basis and only after an investigation, not as a condi-

tion of employment ...” (Defendants’ Opposition

Brief, page 17);

43a

4. Individual employees “made restitution volun-

tarily” and only “in lieu of alternative recovery op-

tions such as recourse to local law enforcement

(Defendants’ Opposition Brief, page 17);

5. “Any alleged violation of the FLSA salary ba-

sis test resulted from ...” a misinterpretation or un-

authorized application of LJS policy ...” (Defendants’

Opposition Brief, page 22).

Plaintiffs focus the inquiry more precisely upon

the stated policy of LJS with respect to reimburse-

ments from salary and the application. of FLSA re-

quirements to that policy. According to plaintiffs, the

salary basis regulation set forth in 29 CFR Section

541.118 requires that an exempt employee be paid “a

predetermined amount constituting all or part of his

compensation, which amount is not subject to reduc-

tion because of variations in the quality or quantity

of the work performed.” Plaintiffs urge that “discipli-

nary reductions in pay, other than for violations of

major safety rules, constitute reductions in pay

based on the quality and quantity of an employee’s

work.” Shockley vs. City of Newport News, 997 F.2d

18, 25 (4th Cir. 1993). Further, “employees whose

compensation is subject to reduction based on a vio-

lation of any other rules are ordinarily considered

nonsalaried and are entitled to overtime.” Hurley vs.

State of Oregon, 27 F.3d 392, 394 (9th Cir. 1994).

From the pleadings and from the declarations

submitted, it is concluded that there are predomi-

nant legal issues which may be framed and adjudi-

cated without the necessity for extended inquiry into

individual cases. It is the LJS reimbursement policy

as promulgated which, if established by the evidence,

invokes the imposition of the FLSA rules and regula-

tions, regardless of individual application in various

aR:

44a

stores and locales. It is the potential for impermissi-

ble deductions from an employee's “salary” which

contravenes the FLSA’s “salary basis test.” Hurley

vs. Oregon, supra; Kinney vs. District of Columbia,

994 F.2d 6, 11 (D.C. Cir. 1993); Balgowan vs. New

Jersey Department of Transportation, 84 F.3d 656

(8d Cir. 1996); Shockley vs. Newport News, supra.

Whether any individual employee has actually suf-

fered a reduction in pay need not alter his or her

status as an exempt or nonexempt employee.

In Auer vs. Robbins, 519 U.C. 452 (1997), the

Supreme Court recognized the “broad authority” of

the Secretary of Labor to “define and delimit” the

scope of any exemption from executive, administra-

tive, or. professional employees. “Under the Secre-

tary’s chosen approach, exempt status requires that

the employee be paid on a salary basis which in turn

requires that his compensation not be subject to re-

duction because of variations in the ‘quality or quan-

tity of the work performed.” Auer, supra, page 456.

Auer articulates a “primary issue” as to whether “an

employee’s pay is ‘subject to’ disciplinary or other de-

ductions whenever there exists a theoretical possibil-

ity of such deductions, or rather only when there is

something more to suggest that the employee is ac-

tually vulnerable to having his pay reduced.” Auer,

supra, page 459. According to Auer, the Secretary of

Labor “interprets the salary basis test to deny ex-

empt status when employees are covered by a policy

that permits disciplinary or other deductions in pay

‘as a practical matter.’ That standard is met, the Sec-

retary says, if there is either an actual practice of

making such deductions or an employment policy

that creates a ‘significant likelihood’ of such deduc-

tions.” Auer, supra, page 461.

45a

However that “primary issue” might be resolved

in this arbitration, the record suggests that the pol-

icy of LJS as to whether employees in general were

vulnerable to salary reductions will emerge without

the necessity of adjudicating more than a representa-

tive sample of disputed cases.

Defendants’ argument that an individual em-

ployee is not precluded from “voluntarily agreeing to

reimbursement” is not persuasive. “Voluntarily” ac-

ceding to a reduction in salary as an alternative to

“recourse to local law enforcement” scarcely meets

the test of voluntariness in any context whether civil

or criminal. In any event, “to allow waiver of statu-

tory wages by agreement would nullify the purposes

of [the FLSA].” Brooklyn Sav. Bank vs. O’Neil, 324

U.S. 697 (1945).

On the related issues of pre-certification fact as-

certainment and predominance of issues, Sav-On

Drug Stores, Inc. vs. Superior Court, (2004) 34

Cal.4th 319, provides a pragmatic guide. The issue in

Sav-On was the alleged misclassification of employ-

ees as managerial and exempt. Plaintiffs urged that

employee work responsibilities were “standardized”

throughout the Sav-On chain. Defendants urged sig-

nificant variance based upon multiple factors (“store

location and size, physical layout, sales volume,

hours of operation, management structure and style,

experience level of managers and number of hourly

employees requiring supervision.”) Sav-On, supra,

page 325. Defendants argued that “no meaningful

generalizations about the employment circumstances

of its managers could be made.”

46a

The California Supreme Court upheld the trial

court’s determination that certification was appro-

priate, holding that “the record contains substantial,

if disputed, evidence that deliberate misclassification

was defendant’s policy and practice.” Sav-On, supra,

page 329. Sav-On held that certification would not

preclude defendant from demonstrating wide varia-

tions in the situations of various employees. None-

theless, the predominant issue remained as to

whether there was a uniform classification policy put

into practice under standardized conditions. Sav-On,

page 202. “Preponderance,” notes. the Supreme

Court, “is a comparative concept and ‘the necessity

for class members to individually establish eligibility

and damages does not mean individual fact questions

predominate (citations omitted)” Sav-On, supra,

page 334). The necessity for “individualized proof” as

to certain of the “central issues” pertaining to classi-

fication does not bar certification on preponderance

grounds. Sav-On, supra, page 334.

Plaintiffs correctly note the importance of post-

certification discovery in determining the application

and scope of LJS’s relevant policies. Even without

extended discovery and based upon the record pre-

sented, it is concluded that Plaintiffs have met their

burden of establishing a “well-defined community of

interest among class members (citations omitted)”

embodying predominant common questions of law

and fact and class representatives with claims and

defenses typical of the class. Sav-On, supra, page

326.

Defendants contend Plaintiffs have failed to meet

the numerosity test because not all RGM’s and

ARGM’s were subject to a “facially invalid” or “unfair

practice” and that there are “only isolated, highly in-

Ala

dividualized incidents” of improper deductions.

Again, it is not the fact. of actual deductions so much

as the policy of reimbursement that is determinative.

The parties’ stipulation suggests a class of fewer

than 3,000 employees. That number is sufficiently

large to embrace the benefits of a class action yet not

so large there are insuperable burdens of notice or

administration.

Defendants make the same argument from indi-

vidualized circumstances: in support of their conten-

tion that the requirement of typicality is not sus-

tained. Here, Plaintiffs’ claims arise from the same

provisions of the employment contracts and invoke

the same legal theories of recovery. “When it is al-

leged that the same unlawful conduct was directed at

or affected both the named plaintiff and the class

sought to be represented, the typicality requirement

is usually met regardless of varying fact patterns

which underlie individual claims.” 7 Newberg on

Class Actions, section 3.13 (4th Edition, 2002). Here,

the typicality condition is easily realized.

From the foregoing discussion, it may be con-

cluded that there are “questions of law or fact com-

mon to the class,” and further “that the questions of

law or fact common to members of the class. pre-

dominate over any questions affecting only individ-

ual members.”

Defendants’ objection to the adequacy of the rep-

resentative parties primarily derives from its view

that the individual claims of Kaufman and Cole are

barred by the statute of limitations. That issue was

addressed above. There is no evidence or suggestion

that the named Plaintiffs interests are antagonistic

to the class, or that there is any collusive relation-

ship. Similarly, counsel for Plaintiffs have demon-

48a '

strated a capable devotion to the prosecution of this

case that satisfies the requirements of Rule 4(a)(5).

Finally, Defendants urge that Plaintiffs have

failed to show that a class action is superior to thou-

sands of individual actions. Defendants’ concern is

that the scrutiny of each alleged salary reduction

would create countless “mini proceedings” and that

certification would preclude Defendants’ right to in-

dividual defenses. Again, the facts of a particular

employee’s salary reductions do not address Plain-

tiffs’ theory that it is the potential for reduction that

alters the employee’s exempt status within FLSA. In

any event, “a class ac*ion is not inappropriate simply

because each member of the class may at some point |

be required to make an individual showing as to his

or her eligibility for recovery or as to the amount of

damages.” Sav-On, supra, page 204. Nor does certifi-

cation attenuate the entitlement of Defendants to de-

fend against Plaintiffs’ complaint by demonstrating

wide variations in the individual~circumstances of

various employees. Sav-On, supra, page 330. What-

ever the management problems of a class action,

however, the opportunity collectively to adjudicate

central issues of law and fact in a single proceeding

without conflicting decisions outweighs the specter of

3,000 separate trials. With any modicum of coopera-

tion, it may be possible to resolve the entirety of the

case, in favor of one side or the other, by adjudicating

those central issues from which the individual varia-

tions flow. :

Based upon the foregoing, the Arbitrator finds

that all of the prerequisites for a class arbitration set

forth in Rules 4(a) and (b) of the Supplementary

Rules have been satisfied and that this arbitration

shall proceed as a class arbitration.

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49a

In accordance with Rule 5(a), this is a partial fi-

nal award. Pursuant to Rule 5(d), all proceedings are

stayed for a period of 90 days to permit either party

to move a court of competent jurisdiction to confirm

or vacate this award.

Rules 5(b) and (c) anticipate that a proposed No-

tice of Class Determination be attached to the award.

The nature of the issues presented (particularly

those relating to tolling and opt-in/opt-out) has pre-

cluded counsel from realistically addressing the no-

tice issues prior to the issuance of this award. The

parties are ordered to meet and confer regarding the

resolution of any issues pertaining to notice and to

agree, if necessary, to a schedule of briefing and

hearing. The stay provision shall not affect the reso-

lution of issues relating to notice.

---000---

Date: September 19, 2005

/s/

HON. RICHARD A. HODGE (Ret.)

ARBITRATOR

I, RICHARD A. HODGE, do hereby affirm upon

my oath as Arbitrator that I am the individual de-

scribed in and who executed this instrument, which

is my Class Determination Partial Final Award.

Date: September 19, 2005

Is/_,

HON. RICHARD A. HODGE (Ret.)

ARBITRATOR

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50a

APPENDIX D

SUPPLEMENTARY RULES FOR

CLASS ARBITRATIONS*

EFFECTIVE DATE OCTOBER 8, 2003

RULE

me ii 3

Applicability

Class Arbitration Roster and Number of Arbitra-

tors

Construction of the Arbitration Clause

Class Certification

Class Determination Award

Notice of Class Determination

Final Award [omitted]

Settlement, Voluntary Dismissal, or Compromise

[omitted]

Confidentiality; Class Arbitration Docket [omit-

ted]

Form and Publication of Awards [omitted]

11. Administrative Fees and Suspension for Non-

payment [omitted]

12. Applications to Court and Exclusion of Liability

[omitted]

* These rules are available at http://www.adr.org/sp.asp?id=

21936, and are reproduced here for the convenience of the

Court.

5la

1. Applicability

(a) These Supplementary Rules for Class Arbitra-

tions (“Supplementary Rules”) shall apply to

any dispute arising out of an agreement that

provides for arbitration pursuant to any of the

rules of the American Arbitration Association

(“AAA”) where a party submits a dispute to

arbitration on behalf of or against a class or

purported class, and shall supplement any

other applicable AAA rules. These Supplemen- |

tary Rules shall also apply whenever a court

refers a matter pleaded as a class action to the

AAA for administration, or when a party toa

pending AAA arbitration asserts new claims

on behalf of or against a class or purported

class.

(b) Where inconsistencies exist between these

Supplementary Rules and other AAA rules

that apply to the dispute, these Supplemen-

tary Rules will govern. The arbitrator shall

have the authority to resolve any inconsis-

tency between any agreement of the parties

and these Supplementary Rules, and in doing

so shall endeavor to avoid any prejudice to the

interests of absent members of a class or pur-

ported class.

resolved any matter that would otherwise be

decided by an arbitrator under these Supple-

mentary Rules, the arbitrator shall follow the

order of the court.

2. Class Arbitration Roster and Number of Ar-

bitrators -

(a) In any arbitration conducted pursuant to

these Supplementary Rules, at least one of the

52a

arbitrators shall be appointed from the AAA’s

national roster of class arbitration arbitrators.

(b) If the parties cannot agree upon the number of

arbitrators to be appointed, the dispute shall

be heard by a sole arbitrator unless the AAA,

in its discretion, directs that three arbitrators

be appointed. As used in these Supplementary

Rules, the term “arbitrator” includes both one

and three arbitrators.

3. Construction of the Arbitration Clause

Upon appointment, the arbitrator shall determine as

a threshold matter, in a reasoned, partial final

award on the construction of the arbitration clause,

whether the applicable arbitration clause permits

the arbitration to proceed on behalf of or against a

class (the “Clause Construction Award”). The arbi-

trator shall stay all proceedings following the issu-

ance of the Clause Construction Award for a period

of at least 30 days to permit any party to move a

court of competent jurisdiction to confirm or to va-

cate the Clause Construction Award. Once all parties

inform the arbitrator in writing during the period of

the stay that they do not intend to seek judicial re-

view of the Clause Construction Award, or once the

requisite time period expires without any party hav-

ing informed the arbitrator that it has done so, the

arbitrator may proceed with the arbitration on the

basis stated in the Clause Construction Award. If

any party informs the arbitrator within the period

provided that it has sought judicial review, the arbi-

trator may stay further proceedings, or some part of

them, until the arbitrator is informed of the ruling of

the court.

In construing the applicable arbitration clause, the

arbitrator shall not consider the existence of thesé

53a

Supplementary Rules, or any other AAA rules, to be

a factor either in favor of or against permitting the

arbitration to proceed on a class basis.

4. Class Certification

(a) Prerequisites to a Class Arbitration

If the arbitrator is satisfied that the arbitra-

tion clause permits the arbitration to proceed

as a class arbitration, as provided in Rule 3, or

where a court has ordered that an arbitrator

determine whether a class arbitration may be

maintained, the arbitrator shall determine

whether the arbitration should proceed as a

class arbitration. For that purpose, the arbi-

trator shall consider the criteria enumerated

in this Rule 4 and any law or agreement of the

parties the arbitrator determines applies to

the arbitration. In doing so, the arbitrator

shall determine whether one or more members

of a class may act in the arbitration as repre-

sentative parties on behalf of all members of

the class described. The arbitrator shall per-

mit a representative to do so only if each of the

following conditions is met:

(1) the class is so numerous that joinder of

separate arbitrations on behalf of all mem-

bers is impracticable;

(2) there are questions of law or fact common

to the class;

(3) the claims or defenses of the representative

parties are typical of the claims or defenses

of the class;

(4) the representative parties will fairly and

adequately protect the interests of the

class;

54a

(5) counsel selected to represent the class will

fairly and adequately protect the interests

of the class; and

(6) each class member has entered into an

agreement containing an arbitration clause

which is substantially similar to that e

signed by the class representative(s) and 4

each of the other class members.

(b) Class Arbitrations Maintainable

An arbitration may be maintained as a class

arbitration if the prerequisites of subdivision

(a) are satisfied, and in addition, the arbitra-

tor finds that the questions of law or fact

common to the members of the class predomi-

nate over any questions affecting only individ-

ual members, and that a class arbitration is

superior to other available methods for the fair

and efficient adjudication of the controversy.

The matters pertinent to the findings include: _

(1) the interest of members of the class in in-

dividually controlling the prosecution or

defense of separate arbitrations;

(2) the extent and nature of any other proceed-

ings concerning the controversy already

commenced by or against members of the

class;

(3) the desirability or undesirability of concen-

trating the determination of the claims in a

single arbitral forum; and

(4) the difficulties likely to be encountered in

the management of a class arbitration.

5. Class Determination Award

(a) The arbitrator’s determination concerning

whether an arbitration should proceed as a

55a

class arbitration shall be set forth in a rea-

soned, partial final award (the “Class Deter-

mination Award”), which shall address each of

the matters set forth in Rule 4.

(b) A Class Determination Award certifying a

class arbitration shall define the class, identify

the class representative(s) and counsel, and

shall set forth the class claims, issues, or de-

fenses. A copy of the proposed Notice of Class

Determination (see Rule 6), specifying the in-

tended mode of delivery of the Notice to the

class members, shall be attached to the award.

when and how members of the class may be

excluded from the class arbitration. If an arbi-

trator concludes that some exceptional cir-

cumstance, such as the need to resolve claims

seeking injunctive relief or claims to a limited

fund, makes it inappropriate to allow class

members to request exclusion, the Class De-

termination Award shall explain the reasons

for that conclusion.

(d) The arbitrator shall stay all proceedings fol-

lowing the issuance of the Class Determina-

tion Award for a period of at least 30 days to

permit any party to move a court of competent

jurisdiction to confirm or to vacate the Class

Determination Award. Once all parties inform

the arbitrator in writing during the period of

the stay that they do not intend to seek judi-

cial review of the Class Determination Award,

or once the requisite time period expires with-

out any party having informed the arbitrator

‘that it has done so, the arbitrator may proceed

with the arbitration on the basis stated in the

Class Determination Award. If any party in-

56a

forms the arbitrator within the period pro-

vided that it has sought judicial review, the

arbitrator may stay further proceedings, or

some part of them, until the arbitrator is in-

formed of the ruling of the court.

(e) A Class Determination Award may be altered

_or amended by the arbitrator before a final

award is rendered.

6. Notice of Class Determination

(a) In any arbitration administered under these

Supplementary Rules, the arbitrator shall, af-

ter expiration of the stay following the Class

Determination Award, direct that class mem-

bers be provided the best notice practicable

under the circumstances (the “Notice of Class

Determination”). The Notice of Class Determi-

nation shall be given to all members who can

be identified through rea

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