SAN FRANCISCO (Legal Newsline) — In the case Martin v. Yasuda, the U.S. Court of Appeals for the Ninth Circuit recently ruled that the Amarillo College of Hairdressing beauty school must litigate its students' wage and hour claims because it waited too long to seek arbitration.

In October 2013, students of Amarillo College, which goes by Milan Institute and the Milan Institute of Cosmetology, filed a class action against the school and its owner, Gary Yasuda, alleging they weren’t paid for work they performed as trainees, violating the Fair Labor Standards Act and California law.

The beauty school contended it wasn't liable because the students were not employees. In July 2014, the U.S. District Court for the Central District of California denied Amarillo's motion to dismiss, with leave for the plaintiffs to amend their claims.

In August 2014, a second amended complaint was filed. In September 2014, Yasuda and the college claimed the right to arbitrate as an affirmative defense but did not take any action. In March 2015, Amarillo moved to compel individual arbitration.

The district court denied the motion, holding that Amarillo had waived its arbitration rights by waiting 17 months. The district court said requiring arbitration would prejudice the plaintiffs at that point since it had already ruled in the plaintiffs’ favor.

On appeal, Amarillo argued that arbitration should decide whether it waived its right to arbitrate in the case, not the district court. In July 2015, the Ninth Circuit ruled that courts decide questions of arbitration. It also ruled that there must be clear language if parties want an arbitrator involved, and that arbitration must be taken at the outset of a case.

While the Ninth Circuit said that delay alone does not waive the right to arbitrate, it noted that Amarillo “engaged in conduct inconsistent with their right to arbitrate,” thus demonstrating a decision to waive the right, which included “filing a motion to dismiss on a key merits issue, entering into a protective order, answering discovery, and preparing for and conducting a deposition,” as well as telling the judge “we are probably just better off being here in the court.”

“The court didn’t like that the defendant appeared to roll the dice in the courts,” Lisa Bowman, associate at Ogletree Deakins, told Legal Newsline. “They were taking actions like filing a motion to dismiss, engaging in discovery, seeking a decision on the merits - then turning to arbitration when things didn’t go their way.”

Bowman said that the appellate court was concerned with the prejudice to the plaintiffs as well as that Amarillo appeared to be forum shopping by looking to see how things played out in court before turning to arbitration.

“It was what can be interpreted as a manipulation of the system,” Bowman said.

“I think if you look at the delay, coupled with the actions of the lower court, it is not necessarily surprising that an appellate court would say you waived your right to arbitrate by taking all actions that would seem to be contrary to an intention to arbitrate.

"But this case confirms that the defendants should assess their arbitration plans early and not engage in that type of behavior.”

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