Commercial Division Blog

Posted: October 13, 2015 / Categories Commercial, Arbitation, Mediation and Other ADR, Class Actions

Class Action Arbitration Waivers Signed After Litigation Begun Not Enforced

On October 8, 2015, the First Department issued a decision in Weinstein v. Jenny Craig Operations, Inc., 2015 NY Slip Op. 07345, affirming a trial court decision not to enforce class action arbitration waivers signed after an action was filed.

In Weinstein, the defendant had employees "sign arbitration agreements containing class-action waivers after" a class action was filed. The First Department accepted that the "defendant had a plausible explanation as to why it initiated a change in its arbitration agreements to include class-action waivers on the very day plaintiffs filed this class action litigation, in that it was responding to the United States Supreme Court's decision in AT & T Mobility LLC v Concepcion (563 US 333 [2011]), decided April 27, 2011, which held that the FAA (9 USC § 1 et seq.) preempts all state laws that hold that class-action waivers with employees are unconscionable. Defendant also plausibly explained that it was unaware of the litigation, which was filed with the New York Secretary of State and was not served on defendant until seventeen days after commencement of the action."

However, the First Department nonetheless affirmed the trial court decision not to enforce the waivers, explaining:

[E]ven after service of the summons and complaint on defendant, [the defendant] continued having putative class member employees sign the arbitration agreements, without informing them of the existence of this class action litigation or of their right to join this action. Given the authority granted to the court to protect putative class members and the fairness of the process, the court properly exercised its discretion by drawing the inference that the agreements had been implemented in response to this litigation and to preclude putative class members.

(Internal quotations and citations omitted).