Matt Edling Interviewed by The Recorder on Class Arbitration

February 18, 2015
The Recorder

Plaintiffs lawyers with Cotchett, Pitre & McCarthy are asking for a judge's help untangling contrary arbitration rulings in consumer cases against genetic testing company 23andMe Inc.

Cotchett split ranks with a group of plaintiffs firms last year by acquiescing to arbitration, while others fought to keep the case in federal court. When a federal judge granted the company's motion to compel arbitration, Cotchett partner Matthew Edling crowed that his firm would take the lead in arbitrating the case "on behalf of all class members."

But according to a lawsuit filed Friday in San Francisco Superior Court, the out-of-court battle hasn't been a smooth path for plaintiffs.

In September, an arbitrator denied Cotchett's bid to arbitrate claims against 23andMe on a class basis, while three months later another arbitrator reached the opposite conclusion in a parallel action brought by Boston firm WhatleyKallas and Miami firm Podhurst Orseck.

There's no clear precedent that dictates which ruling should hold, and Edling's team argues that the question of whether an arbitration agreement permits class adjudication is a "gateway issue" that must be decided by a court, not an arbitrator. Requiring plaintiffs to separately arbitrate their claims against 23andMe would likely make it too expensive to proceed, the suit states.

The predicament highlights what some lawyers see as a troublesome gap in the arbitration process—the decision of one arbitrator isn't binding on another. It's an important issue for consumer attorneys as more claims are funneled into arbitration following the Supreme Court's 2011 ruling in AT&T Mobility v. Concepcion.

"If two judges were to reach different conclusions, there would be an appellate process to decide which judge is right," Edling said. "And here you don't have that."

Plaintiffs lawyers sued 23andMe in the Northern District of California, alleging the company falsely claimed customers could use results from its genetic testing kits to determine possible health risks. The litigation followed a warning letter from the U.S. Food and Drug Administration in late 2013 demanding the company stop marketing its kits for diagnostic purposes. U.S. District Judge Lucy Koh granted the company's motion to compel arbitration in June. Cotchett's Edling, who already had filed a claim with the American Arbitration Association in December 2013, was prepared.

23andMe's user agreement makes no mention of class arbitration and the company's lawyers at Orrick, Herrington & Sutcliffe have argued it should not be allowed. Edling says it would be imporper to infer a ban on class proceedings where none is written.

"Somewhere between 96 and 98 percent of arbitration clauses have an express class arbitration ban," Edling said.

The 23andMe agreement invokes California law, which is generally favorable to class arbitration, and does not reference the Federal Arbitration Act, an omission Edling called highly unusual.

In September, arbitrator Yaroslav Sochynsky sided with 23andMe, in part because the company's user agreement is framed bilaterally as a contract between "you" and the company.

Ruling in December, arbitrator Robert Brent said he would allow plaintiffs to proceed on a class-wide basis. Brent noted 23andMe's arbitration clause refers to "arbitral awards," meaning, "it is reasonable to conclude that it refers to more than one arbitration award and therefore more than one party."

The Orrick team has moved for reconsideration, citing the conflicting decision by Sochynsky.

Orrick partner Robert Varian accused plaintiffs of trying to relitigate a settled issue to get a different ruling.

"It's just people taking as many bites of the same apple as they can," he said.

WhatleyKallas partner Patrick Sheehan played down the conflict. "Each ruling stands on its own based on the arguments made in each case," he said.

The Cotchett team says it's up to a judge to decide whether claims can be arbitrated on a classwide basis. They cite the Fourth District Court of Appeal's November decision in Garden Fresh v. Superior Court, which held the question is a "gateway issue and is thus reserved for judicial determination."