Arbitration, Sales Reps and Personal Injury Claims

by Dechert LLP
Contact

While it doesn’t involve a drug or device claim, James v. Conceptus, Inc., N. H-11-1183, 2012 U.S. Dist. LEXIS 32434 (S.D. Tex. Mar. 12, 2012), does involve a device company, sales rep, arbitration clause, and a determination that it isn’t unconscionable to send someone unwillingly to California.  That was enough to pique our interest.     
The plaintiff was a medical device sales rep.  Id. at *1.  He claimed that he was fired after he discovered certain information that he believed showed that a doctor and previous sales rep violated the False Claims Act.  Id. at *5-6.  He saw his firing as retaliation and filed a retaliation claim under False Claims Act §3730(h).  But this case really isn’t so much about what the sales rep claimed.  It’s more about where and how he could claim it. 
The sales rep filed his case in Texas federal court. The company wanted arbitration in California.  Id. at 1.  Why?  Because the sales rep’s employment agreement required that “any dispute” concerning his employment agreement be resolved by arbitration in “in San Mateo County of the State of California.”  
So the company moved to dismiss the case in favor of arbitration.  As you’d expect, the sales rep tried to get around the arbitration clause. 
But that isn’t so easy these days.  At least, not since the Supreme Court’ recent decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).  This decision gave teeth to section 2 of the Federal Arbitration Act (“FAA”), which says that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for revocation of any contract.”  The Concepcion court read the FAA to require courts to “place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.”  Id. at 1745. Moreover, the Court recently re-emphasized this the importance of this decision by upholding pre-dispute agreements to arbitrate personal injury or wrongful death claims against nursing homes.  Marmet Health Care Ctr. v. Brown, 132 S. Ct. 1201 (2012).
Facing this strong mandate, it’s not surprising that the sales rep tried to get around the FAA by arguing that a different federal statute, the more-recent Dodd-Frank Act, rendered the arbitration clause unenforceable.  Dodd-Frank amended the whistleblower provisions of the Commodity Exchange Act and the Sarbanes-Oxley Act to make unenforceable any pre-dispute clause that required arbitration of claims under their whistleblower provisions.  2012 U.S. Dist. LEXIS, at *15.  The problem, though, is that the sales rep wasn’t suing under either of those Acts.  His retaliation claim was under the False Claims Act, which Dodd-Frank didn’t amend.  “When Congress amends one statutory provision but not another, it is presumed to have acted intentionally.”  Id. at *15-16.  The court properly rejected this argument. 
The sales rep’s fall-back position was that two provisions of the arbitration clause – that he must pay half the costs of the arbitration, and that the arbitration occur in California – were unenforceable because they were unconscionable under California law, which applied under the employment agreement.  He got, at best, a split decision. 
In considering the applicability of California’s law of unconscionability, the James court applied its general understanding of Concepcion: “if the state law singles out arbitration agreements by imposing requirements that do not apply to other contracts, §2 of the FAA preempts applying that law to ‘disfavor’ arbitration.”  Id. at *8.   The court determined that the requirement that the sales rep pay half the cost of the arbitration was unconscionable because it would have required the sales rep to do something that he could not – pay half the arbitration bill.  Id. at *33-34.  The court felt that this application of California’s law on unconscionable agreements did not single out arbitration.
More important, though, the Court upheld the requirement that the sales rep, who lived in Texas, arbitrate his claim in California.  Underlying the court’s decision was the fact that California law had two separate standards for forum selection clauses, one that applied generally (a fair and reasonable standard) and one that applied only to arbitration agreements (which are considered categorically unconscionable.)  Id. at *35-39.  Under Concepcion, this stricter standard that applied to arbitration agreements is preempted because it improperly singles out arbitration.
Applying the fair and reasonable standard instead, the Court upheld the forum selection clause.  Id. at *42-43.  While the sales rep argued that he didn’t have the assets to hire local counsel or pay travel costs, the court didn't buy this argument.  The court noted that the sales rep didn’t need local counsel in an arbitration and that his Texas counsel had shown himself capable of arguing California law.  Id. at *43.  Additionally, travel costs are insufficient to invalidate an arbitration clause – particularly where, as here, plaintiff would have to take only one trip to California .  Id. at *43-44. 

So the forum selection clause was enforced.  And, like it or not, the sales rep was going to California.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP
Contact
more
less

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.