IN THE SUPREME COURT OF OHIO EDWARD F. GEMBARSKI, ) Supreme Court Case No. 2018-0125 on behalf of himself and all ) others similarly situated, ) On Appeal From the Court of ) Appeals of Ohio, Eleventh Appellate Plaintiff-Appellee ) District, Portage County ) v. ) Court of Appeals ) Case No. 2016-PA-00077 PARTSSOURCE, INC., ) ) Defendant-Appellant ) ______________________________________________________________________________ MEMORANDUM BY THE OHIO MANAGEMENT LAWYERS ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF DEFENDANT-APPELLANT ______________________________________________________________________________ Thomas J. Connick (0070527) CONNICK LAW LLC 25550 Chagrin Blvd., Ste. 101 Cleveland, Ohio 44122 [email protected]Counsel for Appellee Edward Gembarski Stephen S. Zashin (0064557) Counsel of Record Jeffrey J. Wedel (0041778) Helena Oroz (0075582) ZASHIN & RICH CO., LPA Ernst & Young Tower 950 Main Avenue, 4 th Floor Cleveland, Ohio 44113 [email protected]Counsel for Appellant PartsSource, Inc. JOHN B. LEWIS (0013156) Counsel of Record DUSTIN M. DOW (0089599) DANIEL R. LEMON (0097113) BAKER & HOSTETLER LLP Key Tower 127 Public Square, Suite 2000 Cleveland, OH 44114-1214 Telephone: 216-621-0200 j[email protected]m Counsel for Amicus Curiae Ohio Management Lawyers Association Supreme Court of Ohio Clerk of Court - Filed June 25, 2018 - Case No. 2018-0125
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IN THE SUPREME COURT OF OHIO
EDWARD F. GEMBARSKI, ) Supreme Court Case No. 2018-0125 on behalf of himself and all ) others similarly situated, ) On Appeal From the Court of ) Appeals of Ohio, Eleventh Appellate Plaintiff-Appellee ) District, Portage County ) v. ) Court of Appeals ) Case No. 2016-PA-00077 PARTSSOURCE, INC., ) ) Defendant-Appellant ) ______________________________________________________________________________
MEMORANDUM BY THE OHIO MANAGEMENT LAWYERS ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF DEFENDANT-APPELLANT
Thomas J. Connick (0070527) CONNICK LAW LLC 25550 Chagrin Blvd., Ste. 101 Cleveland, Ohio 44122 [email protected] Counsel for Appellee Edward Gembarski Stephen S. Zashin (0064557) Counsel of Record Jeffrey J. Wedel (0041778) Helena Oroz (0075582) ZASHIN & RICH CO., LPA Ernst & Young Tower 950 Main Avenue, 4th Floor Cleveland, Ohio 44113 [email protected] Counsel for Appellant PartsSource, Inc.
JOHN B. LEWIS (0013156) Counsel of Record DUSTIN M. DOW (0089599) DANIEL R. LEMON (0097113) BAKER & HOSTETLER LLP Key Tower 127 Public Square, Suite 2000 Cleveland, OH 44114-1214 Telephone: 216-621-0200 [email protected] Counsel for Amicus Curiae Ohio Management Lawyers Association
Supreme Court of Ohio Clerk of Court - Filed June 25, 2018 - Case No. 2018-0125
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TABLE OF CONTENTS Page
INTEREST OF AMICUS CURIAE ................................................................................................1
STATEMENT OF THE CASE ........................................................................................................1
I. PROPOSITION OF LAW NO. 1: Prior to class certification, the Court of Common Pleas lacked jurisdiction to adjudicate the validity and applicability of arbitration agreements between the defendant and the unnamed putative class members ....................4
A. Prior to class certification, courts lack jurisdiction to adjudicate the rights of unnamed members of the putative class ..................................................................5
B. Forcing defendants to litigate the arbitral rights of putative class members prior to class certification also deprives those class members of due process .........7
II. PROPOSITION OF LAW NO. 2: When the named plaintiff in a class action does not have an arbitration agreement, a defendant does not waive the right to arbitrate the claims of unnamed putative class members by waiting until class certification to raise the issue .....................................................................................................................10
A. Prior to class certification, PartsSource could not have acted inconsistently with its right to arbitrate this case because that right did not exist ........................11
1. PartsSource could not have required arbitraiton of Gembarski's suit under R.C. 2711.02 or 2711.03 because Gembarski did not have an arbitration agreement .................................................................................12
2. Defendants need not move to strike deficient class allegations to avoid waiving arguments against class cerfication ....................................13
B. The right to arbitrate is not an affirmative defense, and need not be raised in the defendant’s answer to avoid waiver .................................................................15
1. Policy concerns do not justify requiring parties to raise their arbitration rights in the pleadings ..............................................................16
2. When the defendant has no arbitration rights with the named plaintiff, requiring it to plead its arbitration rights against unnamed putative class members serves no practical purpose, and creates a formalistic "trap for the unwary." ................................................................................18
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C. The arbitration agreements between PartsSource and unnamed putative class members first became relevant to this lawsuit when Gembarski was required to prove that his claims were “typical” of the class he seeks to represent .............19
American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013) ...........................................................................................................16, 19
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) ...................................................................................................................9
In re Checking Account Overdraft Litig., 780 F.3d 1031 (11th Cir. 2015) .....................................................................................6, 17, 18
Chicago, B. & Q. R. Co. v. Chicago, 166 U.S. 226 (1897) ...................................................................................................................9
In re Citigroup, Inc., 376 F.3d 23 (1st Cir. 2004) ......................................................................................................16
Cubberley v. Chrysler Corp., 70 Ohio App.2d 263, 437 N.E.2d 1 (8th Dist. 1981) ...............................................................14
Cullen v. State Farm Mut. Auto Ins. Co., 137 Ohio St.3d 373, 2013-Ohio-4733, 999 N.E. 2d 614 .......................................................4, 8
Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) .................................................................................................19, 20, 21
Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147 (1982). ............................................................................................................4, 21
Gutierrez v. Wells Fargo Bank, NA, 889 F3d 1230 (11th Cir. 2018) ................................................................................................12
Hansberry v. Lee, 311 U.S. 32 (1940) .....................................................................................................................9
Indiana Ins. Co. v. M.D.O. Homes, Inc., 11th Dist. Lake, No. 2000-L-167, 2001 WL 1561063 (Dec. 7, 2001) ......................................6
Jim’s Steak House, Inc. v. City of Cleveland, 81 Ohio St.3d 18, 1998-Ohio-440, 688 N.E.2d 50 ..................................................................15
Lee v. Southern Cal. Univ. for Professional Studies, 148 Cal.App.4th 782 (2007) ....................................................................................................12
Maestle v. Best Buy Co., 100 Ohio St. 3d 330, 2003-Ohio-6465....................................................................................12
Nat’l Labor Relations Bd. v. Alternative Entertainment, Inc., 858 F.3d 393 (6th Cir. 2017) ...................................................................................................20
Phillips v. Lee Homes, Inc., 8th Dist. Cuyahoga No. 64353, 1994 WL 50696 (Feb. 17, 1994) ...........................................16
Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) ...............................................................................................................7, 9
In re Polyurethane Foam Antitrust Litig., 998 F.Supp.2d 625 (N.D. Ohio 2014) ................................................................................16, 17
Reinbolt v. Nat’l Fire Ins. Co. of Hartford, 2004-Ohio-4845, 158 Ohio App.3d 453, 816 N.E.2d 1083 .......................................................6
Rimedio v. SummaCare, Inc., 9th Dist. Summit No. 21828, 2004-Ohio-497..........................................................................21
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Sky Sports, Inc. v. Superior Court, 201 Cal.App. 4th 1363 (Cal. Ct. App. 2011) ...........................................................................18
Sliwinski v. Capital Properties Mgt. Ltd., 2012-Ohio-1822, 2012 WL 1419216, 9th Dist. Summit Co., (April 25, 2012) ......................14
Smith v. Bayer Corp., 564 U.S. 299 (2011) ...................................................................................................................5
Stammco, L.L.C. V. United Tel. Co. of Ohio, 136 Ohio St.3d 231, 2013-Ohio-3019, 999 N.E. 2d 408 ...........................................................4
Standard Fire Ins. Co. v. Knowles, 568 U.S. 588 (2013) ...................................................................................................................6
State ex rel. Ogan v. Teater, 54 Ohio St.2d 235, 375 N.E.2d 1233 (1978) .....................................................................13, 15
Tan v. Grubhub, Inc., No. 15-CV-05128-JSC, 2016 WL 4721439 (N.D. Cal. July 19, 2016) .....................................6
Taylor v. Ernst & Young, L.L.P., 130 Ohio St.3d 411, 2011-Ohio-5262, 958 N.E.2d 1203 ........................................................10
In re TFT-LCD (Flat Panel) Antitrust Litig., No. M 07-1827 SI, 2011 WL 1753784 (N.D. Cal. May 9 2011) .............................................20
U.S. Bank Nat’l Ass’n v. Allen, 2016-Ohio-2766, 52 N.E.3d 1237 (3rd Dist.) ....................................................................10, 17
Fed. R. Civ. P. 23 ................................................................................................................... passim
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Other Authorities
61A American Jurisprudence 2d, Pleading, Section 211 ...............................................................15
John C. Coffee, Jr., Class Action Accountability: Reconciling Exit, Voice, and Loyalty in Representative Litigation, 100 Colum. L. Rev. 370 (2000) .....................................8
NAM Employment Rules and Procedures, Rule No. 12F(iii) ......................................................................................................................21
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INTEREST OF THE AMICUS CURIAE
Amicus curiae Ohio Management Lawyers Association (“OMLA”) is an Ohio nonprofit
corporation. Its stated purpose is “[t]o provide an organization [for the] discussion of common
issues and problems, and promotion of the administration of justice with respect to employment,
labor, and other areas of law affecting employers.” Its members regularly advise employers in
Ohio on employment-law related issues. Many of those issues arise in the context of litigation and
are particularly problematic in the class-action setting, which can involve very expensive and
protracted proceedings and heavily burden the courts as well as the parties. Without clear direction
from this Court regarding what pleading and process is required at the outset of these aggregate
proceedings, the interests of the litigants, putative class members and the courts will be disserved.
These issues are directly implicated by the Court of Appeals’ holding in this case.
STATEMENT OF THE CASE
Appellant’s brief contains a full statement of the facts of this case. For the sake of brevity,
this brief will address only those facts essential to OMLA’s arguments.
This appeal arises from an order certifying a class action. Edward Gembarski sued his
employer, PartsSource, Inc., as an individual on behalf of all individuals similarly situated. The
complaint alleges, in essence, that PartsSource deprived Gembarski and other salespeople of
certain commission payments due to them under their employment contracts.
The employment contracts contain an “opt-out” arbitration provision. Employees choose,
when they are first employed, whether they wish to resolve future disputes with PartsSource by
litigation or arbitration. Gembarski opted out—he chose litigation. Consequently, he did not have
an agreement to arbitrate employment disputes with PartsSource. Many members of the putative
class chose arbitration by declining to reject the arbitration provision.
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The precise contours of the proposed putative class was not apparent during the pendency
of the litigation. When Gembarski filed the complaint on October 1, 2012, he described the class
that he wished to represent as:
All current and/or former PartsSource, Inc. Account Managers and/or employees who are or have been subject to the Plan since the Plan’s existence, and who have earned commissions for making sales of various replacement parts for medical equipment to Defendant’s customers, and whose commission have been wrongfully and improperly withheld and deducted. (October 1, 2012 Complaint, ¶ 26, Sup. 005.)
Later, Gembarski sought leave to file an amended complaint, modifying the class definition
to apply a five-part test for class membership that turned on customer payment of invoices.
(October 18, 2013 First Amended Complaint, ¶ 33, Supp. 033.) The trial court never granted that
motion.
Nearly three years after the initial complaint, Gembarski filed a motion to modify the class
definition to PartsSource “Account Managers and/or employees who are or have been subject to
Defendant PartsSource, Inc.’s policy and wrongful practice of reducing, withholding or deducting,
i.e. taking back or ‘pulling’ earned commissions on sales of medical equipment and/or supplies.”
(September 22, 2015 Motion to Modify/Amend Class Definition, Supp. 046). The same day, he
filed his motion for class certification, using the same definition as contained in his motion to
modify the class definition. In the interim, he withdrew his motion for leave to file the amended
complaint, and presumably the class definition attached to it.
In response to Gembarski’s class certification motion, PartsSource argued that the putative
class lacked Rule 23 “typicality,” because most members of the putative class signed mandatory
arbitration agreements with PartsSource, while Gembarski had not. The trial court certified the
class anyway, finding that PartsSource had waived its right to arbitrate with the unnamed putative
class members by failing to raise it earlier in the Gembarski litigation. (Sept. 20, 2016, Findings
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of Fact, Conclusions of Law, And Order Regarding Plaintiff’s Motion for Class Certification, ¶¶
58-66, App. 066-070.) On appeal, the Eleventh District Court of Appeals affirmed that ruling.
Gembarski v. PartsSource, Inc. 11th Dist. Portage No. 2016-P-0077, 2017-Ohio-8940, ¶ 66. This
Court accepted jurisdiction to resolve whether PartsSource waived its arbitration rights against
unknown putative class members by waiting until class certification to raise them, even though
Gembarski did not have an arbitration agreement, and could not have been compelled to arbitrate
his claims.
ARGUMENT
The trial court should not have certified the plaintiff class. Its decision to do so was based
on the false premise that PartsSource had waived its right to arbitrate employment disputes with
unnamed putative class members. But the court had no jurisdiction to adjudicate PartsSource’s
rights with respect to unnamed putative class members, prior to certification. Gembarski lacked
standing to litigate the waiver issue because he never signed an arbitration agreement that
PartsSource could have waived. And, by holding that PartsSource waived its ability to assert
arbitration-related arguments in the context of class certification, the trial court and Court of
Appeals set a new standard for litigating absent class members’ arbitral rights before class
certification that risks subverting their due process rights. This new standard also permitted the
lower courts to avoid consideration of the true nature and size of the proposed class.
Even if the court did have jurisdiction to decide the waiver issue, which OMLA denies, its
decision also was wrong on the merits. To find that PartsSource slept on its arbitration rights
simply makes no sense. PartsSource never had any arbitration rights to assert in this case.
PartsSource did not have an arbitration agreement with Gembarski, the only plaintiff prior to class
certification, and thus had no basis for moving to compel arbitration or seeking a stay of the
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litigation. Indeed, arbitration is germane to this action only to show that Gembarski is situated
differently from the class he seeks to represent—in other words, to show an absence of Rule 23
“typicality.” See Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 155-157 (1982).1 PartsSource
did not sleep on its rights, but raised them at the precise moment they became relevant, when
Gembarski moved for class certification. The delay between the onset of the suit and PartsSource’s
first assertion of its arbitration rights is attributable not to PartsSource, but to Gembarski, who
waited three years to file his motion for class certification and repeatedly shifted his proposed class
definition from the outset.
Thus, this Court should reverse the decision below, and hold that PartsSource did not—
indeed, could not—waive its arbitration rights with respect to unnamed putative class members by
litigating with Gembarski. And, because the arbitration agreements of the putative class members
precluded class treatment, this Court should also reverse the opinion below and hold that class
certification is not appropriate when a representative’s claims are atypical of the proposed class.
I. PROPOSITION OF LAW NO. 1: Prior to class certification, the Court of Common Pleas lacked jurisdiction to adjudicate the validity and applicability of arbitration agreements between the defendant and the unnamed putative class members.
Everyone agrees that prior to class certification, the sole plaintiff, Gembarski, had not
signed an enforceable arbitration agreement. PartsSource could not have compelled Gembarski to
arbitrate his claims; nor could it have moved to compel arbitration or stay the litigation pending
arbitration of Gembarski’s claims because no arbitration agreement covered them. None of the
putative class members had moved to join the case as a party plaintiff, and indeed, for three years,
1 This Court has recognized that “federal authority is an appropriate aid to the interpretation of the Ohio Rule” because Ohio Rule 23 is virtually identical to the federal Rule. Cullen v. State Farm Mut. Auto. Ins. Co., 137 Ohio St.3d 373, 2013-Ohio-4733, 999 N.E. 2d 614, ¶ 14. See also Stammco, LLC v. United Tel. Co. of Ohio, 136 Ohio St. 3d 231, 2013-Ohio-3019, 999 N.E. 2d 408, ¶ 18.
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Gembarski’s proposed class definition shifted numerous times. So, as potential members of an
uncertified class, neither they nor their claims were before the trial court. See Smith v. Bayer
Corp., 564 U.S. 299, 313 (2011) (noting the “surely erroneous argument that a nonnamed class
member is a party to the class-action litigation before the class is certified”). Consequently, the
trial court had no basis to consider their arbitral rights before class certification.
A. Prior to class certification, courts lack jurisdiction to adjudicate the rights of unnamed members of the putative class.
While the putative class members were not parties to the case prior to certification, the
Court of Appeals held that PartsSource should have litigated the enforceability of their arbitration
8940, ¶ 66. Such a holding defies both logic and established Rule 23 principles. A court can
adjudicate only the rights of parties properly before it. Prior to class certification below, none of
the parties before the trial court had an enforceable arbitration agreement. Id. If PartsSource had
attempted to invoke arbitral rights contained in arbitration agreements of putative class members
it would have required ex parte litigation of those rights.
As a threshold matter, what the Court of Appeals effectively required is an advisory opinion
standard that is forbidden by this Court’s precedent:
It has been long and well established that it is the duty of every judicial tribunal to decide actual controversies between parties legitimately affected by specific facts and to render judgments which can be carried into effect. It has become settled judicial responsibility for courts to refrain from giving opinions on abstract propositions and to avoid the imposition by judgment of premature declarations or advice upon potential controversies.
Fortner v. Thomas, 22 Ohio St.2d 13, 14, 257 N.E.2d 371 (1970). Because Gembarski did not
have an arbitration agreement, there was no effective means for PartsSource to assert its rights as
to absent putative class members. Any litigation involving absent class members’ arbitration
agreements by definition would not have been an “actual controversy.” An actual controversy is
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a “genuine dispute between parties having adverse legal interests of sufficient immediacy and
reality to warrant the issuance of a declaratory judgment.” Wagner v. Cleveland, 62 Ohio App.3d
8, 13 (8th Dist. 1988). “The resolution of that controversy must confer certain rights or status
upon the litigants.” Indiana Ins. Co. v. M.D.O. Homes, Inc., 11th Dist. Lake, No. 2000-L-167,
2001 WL 1561063, at *2 (Dec. 7, 2001). A theoretical controversy that does not involve the rights
of the actual litigants places the court in the position of issuing an improper advisory opinion.
Thus, to require PartsSource to raise an arbitration “defense” to Gembarski’s claims based
on arbitration agreements of non-parties would put the trial court in the position of rendering an
advisory opinion on the enforceability of those agreements—even though none of the agreements
would affect actual parties before the court. See Reinbolt v. Nat'l Fire Ins. Co. of Hartford, 2004-
Ohio-4845, ¶ 14, 158 Ohio App. 3d 453, 459, 816 N.E.2d 1083, 1087 (“An action will not lie to
obtain a judgment which is merely advisory in nature or which answers a moot or abstract
question.”); see also Whittington v. Taco Bell of Am., Inc., No. 10-cv-01884, 2011 WL 1772401,
*6 (D. Colo. May 10, 2011) (“[A] declaration regarding the enforceability of “the arbitration
agreements between the defendant and unnamed putative class members “would constitute an
advisory opinion”).
This issue is why courts in similar circumstances do not and cannot permit litigation of
absent class member rights prior to certification. See Standard Fire Ins. Co. v. Knowles, 568 U.S.
588, 593 (2013) (prior to class certification, named plaintiff “lacked the authority” to litigate on
behalf of the absent class members); see also In re Checking Account Overdraft Litigation, 780
F.3d 1031, 1039 (11th Cir. 2015); Tan v. Grubhub, Inc., 15-CV-05128-JSC, 2016 WL 4721439,
*6 (N.D. Cal. July 19, 2016) (the named plaintiff “ha[d] no standing to challenge the applicability
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or enforceability of the arbitration [agreements] because, in light of his decision to opt out, they
do not apply to him”).
The precedent established by the trial court and the Court of Appeals is untenable and
creates unnecessary obstacles for defendants before certification. To avoid waiver, it forces
premature consideration of absent class members’ rights, which named plaintiffs have no standing
(or incentive) to pursue and which the courts have no jurisdiction to entertain. And the views of
the absent class members cannot even be ascertained. This precedent also ignores the fact that
class certification is when Rule 23 requirements are to be tested. But the lower courts eliminated
a principal component of that analysis -“typicality”- through the premature waiver device.
B. Forcing defendants to litigate the arbitral rights of putative class members prior to class certification also deprives those class members of due process.
The problems associated with the Court of Appeals’ decision are not limited to
jurisdictional issues. Creating an incentive to prematurely litigate absent class members’ arbitral
rights unnecessarily forces their arbitration agreements into a case before they even know the
nature of the dispute or have an opportunity to consent to class representation. That sort of
litigation without representation is a violation of class action principles and due process. Class
litigation, premised on Civil Rule 23 and its requirements, is not intended to be a means to subvert
due process. Rather, the 14th Amendment to the United States Constitution demands that putative
class members be given notice and an opportunity to opt out of a class action before the court can
adjudicate their rights. Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985).
Those due process rights, however, are cast aside when a court demands that putative class
members’ arbitral rights be litigated without their knowledge, consent or ability to intervene. That
is exactly the conduct that the Court of Appeals and trial court encouraged below by holding that
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PartsSource waived its arbitral rights as to the putative class members by not raising them in
response to Gembarski’s individual claim.
Ohio Civil Rule 23, like Fed. R. Civ. P. 23, was designed to advance the pursuit of justice—
not inhibit it. See John C. Coffee, Jr., Class Action Accountability: Reconciling Exit, Voice, and
Loyalty in Representative Litigation, 100 Colum. L. Rev. 370, 371 (2000) (observing the original
role of class actions plaintiffs’ attorneys as “public-regarding private attorney[s] general”). The
new requirement adopted by the Court of Appeals, however, upends Rule 23 principles that this
Court previously embraced. No longer does it matter if an absent class member has received notice
or the right to opt out of a putative class action. Other parties can—indeed, must—litigate the
absent class member’s arbitral rights to accelerate the class certification process. And because
determination of those arbitral rights by definition occurs before a class is certified, the class
members may not even know—much less receive an opt-out alternative. Instead, their rights are
being litigated by other parties with differing interests until it is too late for them to do anything
about it.
In Cullen v. State Farm Mut. Auto Ins. Co., 137 Ohio St.3d 373, 2013-Ohio-4733, 999 N.E.
2d 614, this Court followed the United States Supreme Court’s lead and preserved due process
when class procedure conflicted with individual rights. There, this Court held that a money
damages class action complies with due process only when it provides notice and opt-out rights to
the absent class members. Cullen, 2013-Ohio-4733 ¶ 26. But a putative class member can opt out
only after a class has been certified and opt-out notices have been circulated to the class members.
If a defendant facing potential—but not certain—class claims is required to litigate the arbitration
rights of putative class members before they receive the right to opt out of the case, then the notion
of due process is little more than an empty phrase.
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Examination of what happened below, however, reveals that the Court of Appeals would
require that for a defendant to avoid waiving an arbitral right against an unspecified, absent class
member, the defendant must assert arbitration as an “affirmative defense” to a putative class action
complaint—even if the named plaintiff has not or ever will seek class certification, and even if the
named plaintiff himself does not have an arbitration agreement. Thus, from the very first response
a defendant makes, it must begin litigating the scope of arbitral rights of unknown absent class
members who are not represented and who do not even know about the litigation.
This procedure becomes even more unworkable in the specific circumstances of this case
when the definition of the class shifted multiple times and was not ultimately known until the
plaintiff filed his motion for class certification. In that respect, not only are the putative class
members’ due process rights implicated, but so are the defendant’s if a defendant must litigate the
arbitral rights from the outset of an unknown, unspecified and shifting class. While there is
inherent risk in litigation, it’s not supposed to be a guessing game as to whom your opponent is.
Even if PartsSource were required to litigate absent class members’ arbitral rights, how could it do
so until it knew who those absent class members were?
That is not how class actions are supposed to work, and it is certainly not how due process
works. See Phillips Petroleum, 472 U.S. at 823 (holding that the “constitutional limitations” of
due process must be observed in state courts “even in a nationwide class action.”). Due process in
the class-action context demands that “the litigant whose rights have thus been adjudicated has
been afforded such notice and opportunity to be heard.” Hansberry v. Lee, 311 U.S. 32, 40 (1940).
And there is “a failure of due process . . . in those cases where it cannot be said that the procedure
adopted, fairly insures the protection of the interests of absent parties who are to be bound by it.”
Id. (citing Chicago, B. & Q. R. Co. v. Chicago, 166 U.S. 226, 235 (1897)).
10
There was such a failure below. The Court of Appeals deprived PartsSource of its due
process right to respond to individual claims, and the rule it applied will force the future rights of
absent class member to be resolved without the notice and opt-out protection that Rule 23 is
supposed to provide. There is no other way for a defendant to assert those arbitral rights of absent
class members based on the Court of Appeals’ waiver holding. It forces premature litigation
without representation.
When the rule is that rights must be litigated before the rights holders are aware of what is
happening, neither Civil Rule 23 nor this Court’s due process holdings would recognize the
procedure as sound, valid or fair.
II. PROPOSITION OF LAW NO. 2: When the named plaintiff in a class action does not have an arbitration agreement, a defendant does not waive the right to arbitrate the claims of unnamed putative class members by waiting until class certification to raise the issue.
Ohio favors arbitration agreements as an efficient means of resolving disputes. Taylor v.
Ernst & Young, L.L.P., 130 Ohio St.3d 411, 2011-Ohio-5262, 958 N.E.2d 1203, ¶ 18. Like other
contractual rights, parties can waive their right to arbitrate. U.S. Bank Nat’l Ass’n v. Allen, 2016-
Ohio-2766, 52 N.E.3d 1237, ¶ 13 (3rd Dist.). But “[b]ecause of the strong public policy in favor
of arbitration, the heavy burden of proving waiver of the right to arbitration is on the party asserting
5953, 822 N.E.2d 841, ¶ 9 (9th Dist.). In other words, the waiver doctrine prohibits a defendant
from taking multiple bites at the proverbial apple. When the other party to the arbitration
agreement files a lawsuit, the defendant must choose whether to proceed in litigation, or insist on
arbitration. The defendant cannot wait and see how things go in court, only to strategically insist
on its arbitration rights when the tide of litigation turns against it.
Courts consider the totality of the circumstances when determining whether the defendant
engaged in this kind of gamesmanship. Allen, 2016-Ohio-2766 at ¶ 14. Predictably, they look
first to the time period between when the defendant first had a present, enforceable right to compel
arbitration, and when the defendant sought to enforce that right through a motion to compel
arbitration. Id.; see also Morris, 2010-Ohio-4750 at ¶ 16. They also look to the “extent of the
requesting party’s participation in litigation,” whether the defendant itself invoked the court’s
jurisdiction by filing a counterclaim, and whether the plaintiff would be prejudiced if the court
enforced the arbitration agreement. Allen, 2016-Ohio-2766 at ¶ 14. Again, these are all indicators
courts use to determine whether the defendant strategically chose not to invoke its right to compel
arbitration until it sensed that litigation was going poorly.
A. Prior to class certification, PartsSource could not have acted inconsistently with its right to arbitrate this case because that right did not exist.
When applied to this case, the waiver argument founders before leaving port. Asking
whether the defendant delayed in filing its motion to compel arbitration presupposes that the
defendant had a right to compel arbitration in the first place. In this case, PartsSource did not. It
is undisputed that Gembarski—the only plaintiff prior to class certification—did not have an
arbitration agreement with PartsSource in place. PartsSource could not act inconsistently with a
right that did not exist.
12
1. PartsSource could not have required arbitration of Gembarski’s suit under R.C. 2711.02 or 2711.03 because Gembarski did not have an arbitration agreement.
In Ohio, parties enforce their arbitration rights by moving the court to stay litigation or to
compel arbitration under R.C. 2711.02 or 2711.03. See Maestle v. Best Buy Co., 100 Ohio St. 3d
330, 2003-Ohio-6465, ¶¶ 17-19 for the requirements to enforce an arbitration agreement either via
a motion to stay or to compel arbitration. Courts infer waiver when a defendant with arbitration
rights delays in making this motion. Mills v. Jaguar-Cleveland Motors, Inc., 69 Ohio App.2d 111,
include arbitration as an affirmative defense in an answer does not preclude the participation-in-
litigation analysis”). Waiver is based on the defendant’s failure to act on a present enforceable
right to arbitrate—not on a single pleading misstep. To hold otherwise would evoke an era when
parties won or lost lawsuits based on procedural technicalities, rather than the merits of their
claims. See Hoover v. Sumlin, 12 Ohio St.3d 1, 5, 465 N.E.2d 377 (1984) (“[o]ne of the purposes
of the Civil Rules is to effect the resolution of cases upon their merits, not on pleading
deficiencies”). Here, PartsSource never had a present enforceable right to compel arbitration of
the theoretical claims of unnamed class members, which “necessarily exist[ed] only by
hypothesis.” In re Checking Account Overdraft Litig., 780 F.3d 1031, 1037 (11th Cir. 2015).
Nothing it did in this case could have been inconsistent with a right it did not have.
18
2. When the defendant has no arbitration rights with the named plaintiff, requiring it to plead its arbitration rights against unnamed putative class members serves no practical purpose, and creates a formalistic “trap for the unwary.”
Even ignoring the differences between arbitration and other affirmative defenses, requiring
the defendant to plead arbitration in the answer serves no practical purpose, particularly where
defendant has no arbitration rights against the named plaintiff. Morgan v. AT&T Wireless Servs.,
Inc., 2013 WL 5034436, *5 (Cal. Ct. App. Sept. 13, 2013) (whether the named plaintiff also signed
an arbitration agreement is “critical,” because “the trial court could not compel anybody to arbitrate
until it had somebody before it who signed the arbitration agreement.” (emphasis in original)). The
upshot of the Eleventh District’s holding is that PartsSource, when answering Gembarski’s
complaint, should have pleaded its right to arbitrate the claims of unknown third parties who were
not yet before the court.
It is difficult to see the point of that rule. Gembarski—who did not have an arbitration
agreement with PartsSource—had no standing to litigate the scope or validity of arbitration
agreements between PartsSource and third parties. In re Checking Account Overdraft Litig., 780
F.3d 1031, 1037 (11th Cir. 2015) (“[a]bsent class certification, there is no justiciable controversy
between [the defendant] and the unnamed putative class members”). Requiring PartsSource to
raise an issue that the parties cannot litigate, or else lose its right to arbitrate the claims of unknown
third parties, is legal formalism at its worst. It creates nothing more than a trap for the unwary,
and a mechanism for clever plaintiffs’ counsel to invalidate arbitration agreements by carefully
selecting their named plaintiffs. See Sky Sports, Inc. v. Superior Court, 201 Cal.App.4th 1363,
1369 (Cal. Ct. App. 2011) (“the trial court effectively voided the arbitration agreements because
the appointed class representative did not sign the company’s agreement . . . [but a] class action
is a procedural device and cannot be used to subvert an otherwise enforceable contract”).
19
Indeed, the Eleventh District’s opinion reflects the “judicial hostility toward arbitration”
repeatedly rejected by the Supreme Court of the United States. See, e.g., Epic Systems Corp. v.
Lewis, 138 S. Ct. 1612, 1632 (2018); American Express Co. v. Italian Colors Restaurant, 570 U.S.
228, 232 (2013); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011). Characterizing
an arbitration agreement as a “defense,” rather than an agreement to pursue claims in one forum
rather than another, shows that the Eleventh District thinks of compelling arbitration as akin to
adjudicating the merits of the dispute in favor of the defendant. This Court should reject the
Eleventh District’s attempt to invalidate arbitration agreements by selectively applying arcane
pleading requirements.
C. The arbitration agreements between PartsSource and unnamed putative class members first became relevant to this lawsuit when Gembarski was required to prove that his claims were “typical” of the class he seeks to represent.
Prior to class certification briefing, PartsSource had no reason to raise the issue of putative
class members’ arbitration agreements. Plaintiff Gembarski did not have an arbitration agreement
and given the extended length of the case, there was no telling when or if Gembarski would ever
seek to certify a class. More to the point, because the class definition shifted throughout the
pendency of the case, PartsSource could only guess at the proposed class until Gembarski filed his
class certification motion, which finally defined the class he sought to certify.
At that point, PartsSource correctly informed the trial court that the presence of arbitration
agreements requiring non-class arbitration among the putative class demanded individualized
treatment. That is, Gembarski’s claims, which could be litigated, were clearly atypical of the class,
which consisted of employees who had arbitration agreements that foreclosed them from litigating
their claims on a class basis.
20
When the Court of Appeals affirmed the class certification order, Judge Colleen Mary
O’Toole issued a concurring opinion in which she interpreted the putative class members’
arbitration agreements to be unenforceable. 2017-Ohio-8940, ¶¶ 77-80 (J. O’Toole, concurring).
Because those arbitration agreements interfered with employees’ rights to engage in collective
action under the National Labor Relations Act (NLRA), Judge O’Toole followed a line of case
authority that viewed such arbitration agreements with class waivers as illegal and unenforceable.
Id. (citing Nat’l Labor Relations Bd. v. Alternative Entertainment, Inc., 858 F.3d 393 (6th Cir.
2017)).
Since then, the United States Supreme Court has forcefully resolved the issue. See Epic
Systems Corp. v. Lewis, 138 S.Ct. 1612, 1632 (2018). In May, the Supreme Court expressly
rejected the theory of invalidation that Judge O’Toole relied on. The arbitration agreements are
enforceable because whatever collective rights exist under the NLRA, they do not create a right to
class litigation or override the Federal Arbitration Act’s mandate to enforce arbitration agreements
as written. Id. at *17. Consequently, at the class certification stage, district courts must consider
the presence of arbitration agreements among the putative class if those agreements are otherwise
valid and contain class-action waivers. See, e.g., In re TFT-LCD (Flat Panel) Antitrust Litig., No.
M 07-1827 SI, 2011 WL 1753784, *3 (N.D. Cal. May 9, 2011) (existence of arbitration agreements
“with some members of the putative class but not others is a quintessential individualized issue
that bears on the propriety of class certification”). As Justice Gorsuch explained: “the law is clear:
Congress has instructed that arbitration agreements like those before us must be enforced as
written.” Epic Systems Corp., 138 S. Ct. at 1632.
So too must the arbitration agreements of putative class members below be enforced as
written. Prior to class certification, the validity of those arbitration agreements was not litigated
21
because no one with an arbitration agreement was a party to the case. But as PartsSource explained
in opposing class certification, it maintained a right to compel individualized arbitration of each
putative class members’ claims—once it became apparent what the actual class definition was
going to be. Indeed, the PartsSource arbitration agreements, validated by Epic Systems Corp.,
state clearly that they are subject to the National Arbitration and Mediation Employment Rules
and Procedures (NAM Rules). (Exhibit 1 to May 2, 2016 Defendant PartsSource Inc.’s Brief in
Opposition to Plaintiff’s Motion to Certify Class Action, Supp. 126.) Those NAM Rules, available
at namadr.org foreclose class actions unless the underlying arbitration agreements expressly
authorize class treatment or the parties agree to the same in writing to NAM:
NAM Employment Rules and Procedures, Rule No. 12F(iii) (available at
requirement . . . the class representative must ‘fairly and adequately protect the interests of the
class’. In this case, Appellee does not have any interest in protecting the interests of class members
with arbitration clauses who may desire to pursue arbitration. Appellee, as the sole class
representative does not meet the typicality requirement.”) Their claims cannot be tried in a class
action with Gembarski’s.
CONCLUSION
The Court of Appeals’ decision prematurely addressed the arbitration waiver doctrine in
the class-action context, even though the only named class representative lacked standing to raise
it. Its decision undermines the due process rights of absent class members and defendants, while
forcing trial courts into issuing what amount to advisory opinions. The potential for class-action
abuse is, therefore, significant. This Court should reverse the decision below and hold that
PartsSource did not waive the right to enforce arbitration agreements of putative class members,
the presence of which defeats the typicality required to sustain class-action treatment under Civil
Rule 23.
Respectfully submitted,
/s John B. Lewis John B. Lewis (0013156) Counsel of Record Dustin M. Dow (0089599) Daniel R. Lemon (0097113) BAKER & HOSTETLER LLP Key Tower 127 Public Square, Suite 2000 Cleveland, OH 44114-1214 Telephone: 216-621-0200 [email protected]
Counsel for Amicus Curiae Ohio Management Lawyers Association
23
CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing was served this 25th day of June, 2018, per
S.Ct.Prac.R. 3.11(C)(1) by electronic mail upon the following:
Thomas J. Connick (0070527) CONNICK LAW LLC 25550 Chagrin Blvd., Ste. 101 Cleveland, Ohio 44122 [email protected] Counsel for Appellee Edward Gembarski
Stephen S. Zashin (0064557) Counsel of Record Jeffrey J. Wedel (0041778) Helena Oroz (0075582) ZASHIN & RICH CO., LPA Ernst & Young Tower 950 Main Avenue, 4th Floor Cleveland, Ohio 44113 [email protected] Counsel for Appellant PartsSource, Inc.
/s John B. Lewis John B. Lewis (0013156) Counsel for Amicus Curiae Ohio Management Lawyers Association