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Brayman v. KeyPoint Government Solutions, Inc.

Nos. 22-1118 & 22-1168. 10/3/2023. D.Colo. Judge Hartz. Arbitration Agreement—Fair Labor Standards Act—Class Action Lawsuit—Class Certification—State Law Claims—Fed. R. Civ. Proc. 23.

October 3, 2023

KeyPoint Government Solutions, Inc. (KeyPoint) provides investigative services and background screening for federal government agencies. In 2015, KeyPoint began requiring new hires to sign an arbitration agreement, under which employees must arbitrate all disputes regarding compensation, classification, overtime, and breaks (the arbitration agreement). In 2018, plaintiffs, on behalf of KeyPoint employees nationwide, filed a collective action against KeyPoint under the Fair Labor Standards Act (FLSA) alleging that KeyPoint violated the FLSA through its policies requiring employees to work uncompensated overtime. Plaintiffs later brought a state-law putative class action on behalf of California employees, asserting that KeyPoint violated California’s wage-and-hour laws requiring employers to pay all nonexempt employees one and a half times the regular rate of pay for all hours worked over 40 hours per workweek. KeyPoint moved to compel arbitration of the California-law claims for the 31 California opt-in plaintiffs who signed the arbitration agreement before January 13, 2020, the date on which plaintiffs moved to amend their complaint to add the California claims. The district court denied KeyPoint’s motion. Plaintiffs then moved for final certification of the FLSA collective and certification of the Fed. R. Civ. Proc. 23 class, and KeyPoint moved to decertify the FLSA collective. The district court granted final FLSA certification and certification of the Rule 23 class and denied reconsideration of its arbitration order. KeyPoint filed an interlocutory appeal of the denial of its motion to compel arbitration under 9 USC § 16(a)(1)(C) and also petitioned under Rule 23(f) for permission to appeal the district court’s grant of class certification. The Tenth Circuit consolidated KeyPoint’s two interlocutory appeals.

On appeal, KeyPoint argued that the district court erred in not compelling arbitration. KeyPoint maintained that the district court erroneously ruled that the “pending litigation exception” applied and usurped the arbitrator’s role to decide arbitrability. The parties agreed that the arbitration agreement is valid and enforceable, so the issue was whether certain California plaintiffs are required to arbitrate their California-law claims. Here, the arbitration agreement’s “Arbitrator Decides Clause” gives the arbitrator exclusive authority to decide whether the pending litigation exception applies and thus determine the arbitrability question. Consequently, the district court erred in denying KeyPoint’s motion to compel arbitration.

KeyPoint also argued that the district court erred in granting class certification under Rule 23, challenging the district court’s findings of commonality and predominance. A party seeking class certification must affirmatively demonstrate compliance with Rule 23. Rule 23(a)(2)’s commonality requirement focuses on the capacity of a classwide proceeding to generate common answers that are likely to drive the litigation’s resolution, and the existence of a single common question is sufficient to meet the commonality requirement. To satisfy the Rule 23(b)(3) predominance requirement, a plaintiff must show that common questions subject to generalized, classwide proof predominate over individual questions. Rule 23(a)(2)’s commonality requirement is thus subsumed under Rule 23(b)(3)’s more stringent requirement that questions common to the class predominate over other questions, so the Tenth Circuit focused on the predominance issue. Here, the district court failed to consider a number of questions when determining what issues in the class action were common issues, what issues were individual issues, and which predominate. It also failed to determine whether plaintiffs showed that they could establish the facts they are required to prove through common evidence. Accordingly, the court abused its discretion by failing to perform a claim-specific predominance analysis and thus by certifying the class.

The denial of KeyPoint’s motion to compel arbitration was reversed, the certification of the Rule 23 class was vacated, and the case was remanded for further proceedings.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

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