May 1, 2017

Lit Alerts—May 2017

A Publication of the Litigation Practice Group

In This Issue:



Employment: Franchisor Wins Summary Judgment of Wage Claims Brought by Employees of Franchisee on Ostensible Agency Theory

On March 10, the US District Court for the Northern District of California granted summary judgment to McDonald's in a putative class action brought by employees of several of its franchise restaurants. The employees claimed the owner of the franchise restaurants owed unpaid wages and had failed to provide meal and rest breaks. The employees also alleged that McDonald's was liable in addition to the franchise restaurant owner.

As a matter of California law, McDonald's cannot be held liable to the franchise restaurant workers unless it is their "employer." California defines an "employer" as one who "directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person." The plaintiffs argued that the phrase "through an agent" permitted a finding of liability under an "ostensible agency" theory—essentially, on the grounds that McDonald's had negligently caused the franchise restaurant employees to reasonably believe that the owner of the franchise restaurant was an agent of McDonald's. The court previously ruled that McDonald's did not exercise control over wages, hours, or working conditions of the employees.

The court ruled that, without evidence of such control, the plaintiffs could not succeed on their ostensible agency theory. It reasoned that the language "through an agent" was expressly limited by the language that followed, and that the plaintiffs' interpretation would render such language superfluous. Moreover, because the language was clear, the court did not need to consider the plaintiffs' policy arguments, which could not properly be a basis for "re-writ[ing] applicable legislation." The ruling brings an end to a case that was originally filed against McDonald's in 2014.

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Elections: Northern District of Illinois Rules Campaign Promises are Non-Actionable

The Northern District of Illinois dismissed a suit last month brought against a former member of the US House of Representatives alleging that the representative was liable to his campaign donors under fraud, promissory estoppel, and unjust enrichment theories.

The suit alleged the former representative had promised his donors he would be an "honest politician" to attract campaign donations, which he then illegally spent for personal purposes. The court dismissed the donor's suit, stating that when a politician refers to himself as "honest" and "different [from other corrupt politicians]," his statement amounts to nothing more than "inactionable puffery."

The court further ruled that the donor's claim that he would not have donated to the politician had he known of the politician's dishonesty must fail because the donor could not show the representative had any legal duty to disclose information to his donors that contradicted his campaign promises of honesty.

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Arbitration: California Supreme Court Limits Waivers of Public Injunctive Relief in Arbitration Agreement

In a much-anticipated decision, the California Supreme Court held that an arbitration agreement's waiver of the right to seek, in any forum, public injunctive relief—that is, an order enjoining a practice challenged under the state's Unfair Competition Law, Consumers Legal Remedies Act, or False Advertising Law—is void as against public policy. McGill v. Citibank, N.A., No. S224086 (Cal. Apr. 6, 2017).

The decision notes but does not expressly address the rule the court articulated in its Broughton-Cruz line of cases: "Agreements to arbitrate claims for public injunctive relief" under those consumer statutes "are not enforceable in California." However, those cases were decided before the US Supreme Court's decision in AT&T Mobility v. Concepcion, which sharply limited the ability of state courts to use state laws to void certain arbitration clauses. The California Supreme Court skirted the issue of Concepcion's impact on the Broughton-Cruz rule because the defendant, Citibank, conceded that the arbitration agreement at issue precluded the plaintiff from seeking public injunctive relief in any forum, not just in arbitration. The court found California Civil Code section 3513, which prohibits contractual waiver of "a law established for a public reason," precluded enforcement of the public-injunctive-relief waiver before it.

The court rejected Citibank's argument that the Federal Arbitration Act (FAA) would preempt such a rule. It observed that Section 3513 is generally applicable to all contracts and does not single out arbitration agreements. Accordingly, the court concluded that enforcing it would be consistent with Section 2 of the FAA, which permits courts to declare arbitration agreements unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract." The court further distinguished the US Supreme Court's recent Italian Colors decision. It reasoned that the global waiver of public injunctive relief before it applied to a substantive statutory right, in contrast to the classwide arbitration waiver the US Supreme Court found enforceable in Italian Colors (which was deemed procedural).

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