# Petition for Writ of Certiorari — Long John John Silver's Inc. Inc. v. Cole (No. 07-1370) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_1422%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2008 ## Text Gv 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 i 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 TBs LAGPEe BRM MIP CE TOBDy vais snccseccesnccrsvcncsessveseceesensade i RULE 14.1(b) STATEMENT ...................ccccccesseecereees li PAGER BR Bly ee oo 26 een 2 | Peo She Sag yo 85 oy yf Dr vii Pe MIT cvcviisnnsnncccsccnavesocdececcysscssoesconssecesss 1 gE TAIT cl hle ides sakayvisndsdshvenbsgsclecasessocesscasoecn sacs 1 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 1. iv 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 1. 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. Vv 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. vi 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 ix 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- 2 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 > 3 500 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 4 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 5 {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. 6 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- ee . SS Saye 7 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. 8 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 FS, RAP aed oy ELE Se eae Rana ae ee Ne Ce ee Pee eee Te Bae fgg easy SpE hie bd APSE MCR oes PA eer a egey Wa pe : Vg e ee jos site Rae Bt hi 10 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. 11 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- 12 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). 13 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. 14 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). 15 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 16 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 rT “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 18 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, 19 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- 20 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). : ae SS one SP a Te eS et ae pee ele Te a we eS Ce NE ee Ee OL Te ET AEE NEG Ree A ig ES en ee | Re ea, ae ee ae ee a ee ee SY ee ROR SS ot Bf es OR Pe ee NL OSE ee, in Pee ee 21 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 22 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 BE pS ES Pe ee AD GE ae og TEEN RE LER ME OTR Pe: Boe me Dy te NTE eT UAL ya pee Pe gee RN gh Seat Re ee cee eI TR whe SEE See AT ON Co hag Fy POTS Ee eS rae Ae Sis ae te AS soa oe th ET RE Bee age NEE Det Ea Sa IT aE et p PARSE Me eee see 23 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 et 24 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. 25 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- > EE ee ey Ns REN, MENT NT gy rT ® Ey Eee etd ee ME TNS gate ae REN Man “SMR NR aos Oh cae? ORR he ee nel eee eee Ar te ne ; . ay CE gre Ae sie Ro . A See Ves FRO OM Pe Beiglthe Hy ok weap Spe ia kee ey ee Big tial : > ; AS > 27 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 28 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)). 29 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 30 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 31 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 iy 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. dB 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 la 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. Qa 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. 3a failing to recognize that the arbitrator had exceeded the scope of his authority. As explained below, we reject these contentions and affirm. I. A. 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 4a 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”). B 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 5a 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 6a 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. | C 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 7a 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 as 2 ; “f 8a 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. 9a A. 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. is iad 7 ep ae ae 5 * z ay 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. B. ks 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 8. 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. 2. 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 “ ‘ SANE ‘ tte BF tet Sey Rs vee tent oak yo Meir 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 EE eT ae ae Bin oe Gea ts nia Mia Soni? Sik See a ie oka Nay SD Nan pie Sa ete I gab Se a I eg iy ha Ba cine Mh as bk a tle er} othe 1 = ga AS Pech 1 age é the ‘ ‘ A 7 ap 3 DAT Pe ns : S % 4la 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). i 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. - Sat it ie, D 1p ts Ue Sie Be hala) ay © 2 cots fc Mn! ty BI A MA 20) thar be Lia 4 "hr Dados tg the he wih " Pe Pa OCA a aN, BD ala, MR TN ETE aE LR ES ESTE Ml fp LORL DA! [An Chek Wea fe oy AVG Te AML aM YPN reg Me PRES MRE EMR DOE Me YE: ee A 4 Pe Es eae oe cy bat vig 2 Sei Ba Sea vad al 8 aioe eat ei Ger Reve Seg ee a EE Wand She Oe a Ree 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 Vince i is Sack READ Salis 1 NP pad bea Relic sit wie We ti VL kot aa tal Sire Rite ek Rall ig 8 to SAE ge a ee a a sashes a ae POS tortor Apa Srer coreg area on Te Ng ve me “ty ’ [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_1422%3A1. Public record. Not legal advice.