Appeals panel: $10M arbitrator’s class award invalid; Arbitration should have involved 1, not 175 employees

By Dan Churney | Oct 25, 2018

Seventh Circuit Judge Amy Coney Barrett, at her confirmation hearings before the U.S. Senate  

A Chicago federal appellate court has struck down a $10 million arbitration award to loan officers in a class action against Waterstone Mortgage, which alleged the company shorted officers on overtime pay, saying arbitration should only have involved the plaintiff, not another 174 employees who joined the action.

The Oct. 22 ruling was delivered by Circuit Judge Amy Barrett, with agreement from Circuit Judges William Bauer and Amy J. St. Eve, of the U.S. Seventh Circuit Court of Appeals. 

The ruling favored Waterstone Mortgage Corporation in a 2011 class action brought by plaintiff Pamela Herrington in U.S. District Court for the Western District of Wisconsin. Waterstone is based in Pewaukee, Wis., a Milwaukee suburb. The company has branches around the country.

Herrington was a loan officer for Waterstone in Arizona. She alleged Waterstone violated the U.S. Fair Labor Standards Act by failing to pay loan officers minimum wage in addition to monthly commissions, as well as overtime, with Waterstone allegedly pressuring officers to underreport work hours. 

Herrington’s employment agreement allowed for arbitration between herself and Waterstone, but had a clause that waived collective arbitration. Herrington argued against the waiver, saying arbitration should be allowed to resolve not only her problem with Waterstone, but also between Waterstone and other employees.

District Judge Barbara Crabb sided with Herrington, saying the waiver was illegal because the National Labor Relations Act provided for such collective action. Crabb then ordered collective arbitration, with the arbitrator eventually awarding more than $10 million to Herrington and 174 other loan officers.

Waterstone started the appeals process in December 2017.

Judge Barrett noted that while the appeal was pending earlier this year, the U.S. Supreme Court ruled, in Epic Systems Corp. v. Lewis, such waivers are legal. As a consequence, Barrett said the Waterstone waiver is valid and the $10 million award should be stripped, for now.

Barrett said Herrington had accepted that if the waiver was enforceable, she was barred from collective arbitration. However, on appeal, in “an effort to save her award,” she has “changed her tune” and is contending regardless of the waiver, the employment agreement in and of itself allows for group arbitration, Barrett said.

Barrett labeled Herrington’s contention “implausible” and “weak,” but nonetheless the appeals panel had to determine whether the district judge or the arbitrator should rule on it, with the nod going to the district judge.

Barrett said, in citing U.S. Supreme Court decisions, the choice turned on whether collective arbitration was a “question of arbitrability,” which deal in “gateway matters,” or a “subsidiary question,” which “grow out of the dispute and bear on its final disposition.”

Barrett pointed out neither the Supreme Court nor the Seventh Circuit have weighed in on the question, but every federal appeals court to handle the issue has held the availability of collective or class arbitration is a question of arbitrability.

Barrett ordered the district judge to determine whether the employment agreement authorizes collective arbitration. If the judge finds the agreement does so, the judge can confirm the arbitrator’s award. If the judge finds only solo arbitration is permitted, the award should be vacated and the matter sent to the arbitrator for new proceedings.

Herrington is represented by Getman & Sweeney, of New Paltz, N.Y.

Waterstone is defended by the San Diego office of the firm of Ogletree Deakins, and the Offit Kurman firm, of Fulton, Md.

Want to get notified whenever we write about any of these organizations ?

Sign-up Next time we write about any of these organizations, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

Offit Kurman, Attorneys At Law Ogletree, Deakins, Nash, Smoak and Stewart, P.C. U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Western District of Wisconsin

More News

The Record Network