Chan v. Fresh & Easy, LLC (In re Fresh & Easy, LLC)
| Decision Date | 11 October 2016 |
| Docket Number | Adv. No. 15-51897 (BLS),Case No. 15-12220 (BLS) |
| Parties | In re: Fresh & Easy, LLC, Debtor. Diana Chan, Plaintiff, v. Fresh & Easy, LLC, YFE Holdings, Inc., and The Yucaipa Companies, LLC, Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Related to Adv. Docket Nos. 26, 27, 34, 36, 38, 65, & 67
Before the Court is Fresh & Easy, LLC's (the "Debtor") motion to compel arbitration (the "Motion") under the Federal Arbitration Act ("FAA").2 The Debtor requests the Court to send the above-captioned matter to arbitration on an individual basis, expunge Diana Chan's ("Ms. Chan" or the "Plaintiff") purported class claims, and stay this adversary proceeding until completion of the arbitration. Ms. Chan opposes the Motion on the ground that the arbitration agreement between the parties is unenforceable under the National Labor Relations Act, 29 U.S.C. § 151 et seq. (the "NLRA") because it contains a class-action waiver provision.3
This case presents two matters of first impression in this jurisdiction. The first issue is whether a class-action waiver provision in an arbitration agreement violates the NLRA. There is little consensus on this issue. It has received a great deal of attention in recent months, with two Courts of Appeal parting ways with the majority of courts that have previously considered the issue. The second issue before the Court is whether an arbitration agreement containing a provision that violates the NLRA remains enforceable if that agreement allows an employee to revoke it after following certain procedures.
As discussed in detail below, the Court concludes that a class-action waiver provision violates substantive rights at the heart of the NLRA. Further, the Court finds that the opt-out provision does not operate to save the Arbitration Agreement at issue here. The Debtor's Motion is denied.
On October 30, 2015, Fresh & Easy, LLC filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The Debtor operated a chain of grocery stores in the southwest United States. The Debtor's stores have all closed and substantially all of its assets have been sold during this bankruptcy proceeding.
Ms. Chan worked in the produce department at one of the Debtor's California distribution centers until her termination on October 30, 2015. On November 12, 2015, Ms. Chan commenced this adversary proceeding by filing a complaint4 (the "Complaint") on behalf of herself and a purported class of similarly situated former employees against YFE Holdings, Inc., the Yucaipa Companies, LLC, and the Debtor (collectively, the "Defendants"). The Plaintiff requests this action proceed as a class action under Federal Rule of Bankruptcy Procedure 7023 ("Rule 23") and that she be designated as the class representative.
The Plaintiff's two-count Complaint seeks to recover damages on account of alleged violations of the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2100-2109, and its California counterpart, California Labor Code §§ 1400-1408 (the "Claims"). The Plaintiff avers that the Defendants violated these statutes by failing to give her and other similarly situated employees at least sixty days advance notice of termination.5 The Plaintiff asserts that the class of affected employees is thus entitled to sixty days wages and certain benefits under the Employee Retirement Income Security Act. The Plaintiff has filed the Complaint but has not filed a proof of claim in her individual capacity or a class proof of claim on behalf of similarly situated former employees of the Debtor.
Nearly two years before the Plaintiff's termination, on November 29, 2013, she entered into an arbitration agreement with the Debtor (the "Arbitration Agreement") that required her to resolve all employment-related disputes through arbitration.6 The Arbitration Agreement further provided that the Plaintiff could revoke the agreement if within thirty days of signing the agreement she: (i) notified the Debtor in writing that she was revoking; (ii) signed the notice; and (iii) delivered the revocation notice to the Debtor's human resources department. The record reflects that she did not opt-out of the Arbitration Agreement.
At the outset, the Arbitration Agreement states that the parties "agree that any and all disputes or claims arising out of or relating to the Company/Employee employment relationship, including its termination . . . shall be resolved by final and binding arbitration by a single neutral arbitrator." The agreement covered any dispute with the Debtor's employees, officers, directors, parents, subsidiaries, and affiliated entities. It also permitted Ms. Chan to bring claims only in her individual capacity (hereinafter, the "Class Waiver"): "THE PARTIES AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN THEIR RESPECTIVE INDIVIDUAL CAPACITIES AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS, REPRESENTATIVE OR COLLECTIVE ACTION." In the event a provision in the agreement was held to be void, the Arbitration Agreement provided that the remainder of the contract would remain in full force and effect.
On January 25, 2016, the Debtor filed its Motion seeking to compel arbitration pursuant to the terms of the Arbitration Agreement and dismissal of the Plaintiff's class claims.7 On February 8, 2016, the Plaintiff filed a memorandum of law in opposition to the Motion, and on February 16, 2016, the Debtor filed a reply.8 While this briefing was underway, this Court ruled in a separate adversary proceeding in this case that it lacked discretion to deny enforcement of an identical arbitration agreement9 under the rule stated in Mintze v. Am. Gen. Fin. Serv.'s (In re Mintze), 434 F.3d 222 (3d Cir. 2006).10
Shortly after that decision was issued, the Court granted the Plaintiff's request to file supplemental briefing to address a recent decision by the United States Court of Appeals for the Seventh Circuit.11 The Plaintiff and the Debtor subsequently filed further briefing in support of their respective positions.12 This matter has been fully briefed and is ripe for decision.
The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157(b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of the Motion constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (O).13
The Debtor argues that the FAA requires enforcement of the Arbitration Agreement. The Debtor posits that this Court lacks discretion to deny enforcement of the Arbitration Agreement under Mintze because there is no inherent conflict between arbitrating the Claims and the Bankruptcy Code's underlying purposes.
The Plaintiff suggests that the Court need not reach the question (central to the analysis under Mintze) of whether there is an inherent conflict because the Class Waiver renders the Arbitration Agreement unenforceable under the NLRA and the FAA's savings clause.14 Relying on the recent decision in Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), the Plaintiff contends that Section 7 of the NLRA confers a substantive right for employees to pursue class actions because they constitute concerted activities, which are specifically protected under the NLRA. Because Section 8 of the NLRA deems it an unfair labor practice to interfere with the exercise of rights guaranteed under Section 7, the Plaintiff contends that the Class Waiver violates the NRLA and renders the Arbitration Agreement unenforceable.
In response, the Debtor submits that the Seventh Circuit incorrectly held in Lewis that collective legal adjudication is a substantive right protected by the NLRA. The Debtor relies largely on the reasoning embraced by the majority of courts that have considered the issue: those courts have concluded that class actions are a procedural tool and not a substantive right protected by the NLRA. Consequently, Debtor contends that decisions by the National Labor Relations Board (the "Board") Section 7 to confer a substantive right are not entitled to deference. Further, Debtor argues that the relief requested in its Motion is consistent with the Supreme Court's FAA jurisprudence, which has endorsed an expansive view in favor of arbitrating disputes. Finally, the Debtor asserts that Lewis is materially distinguishable from this case: unlike in Lewis -- where the arbitration agreement was a condition of continued employment -- the Arbitration Agreement at issue here contains an opt-out clause that enabled the Plaintiff to revoke it.
The Plaintiff's challenge to the enforceability of the Arbitration Agreement raises two statutory interpretation issues. First, whether the right to file a class action qualifies as "concerted activities" for "mutual aid or protection" under Section 7 of the NLRA. 29 U.S.C. § 157. If it does, a class waiver infringes on a substantive federal right. Because the Court holds that it does, the Court must address another interpretation question under Section 8 of the NLRA, which makes it "an unfair labor practice for an employer . . . to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7." 29 U.S.C. § 158(a)(1). The Court must decide whether an illegal contractual provision that may be revoked by the employee still interferes with, restrains, or coerces employees in the exercise of their Section 7 rights. The Court addresses each issue in turn.
The NLRA is not interpreted on a clean slate. The Board has been delegated the power and responsibility to interpret the NLRA. NLRB v. City Disposal Sys. Inc., 465 U.S. 822, 829 (1984) (...
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