Second Appellate District concludes that Gentry remains good law, despite Concepcion

While it may not last much longer than it takes the ink to dry on the opinion, the Court of Appeal (Second Appellate District, Division One), in Franco v. Arakenian Enterprises, Inc. (November 26, 2012) considered a significant question: "The question on appeal is whether Gentry was overruled by Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. ___ [130 S.Ct. 1758] (Stolt-Nielsen) and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (Concepcion)."  Slip op., at 3.  Summarizing a 65-page opinion, the Court said:

We conclude that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff's claims must be adjudicated in court, where the plaintiff may file a putative class action. Accordingly, we affirm.

Slip op., at 3.

The decision follows an earlier opinion in the matter, Franco v. Athens Disposal Co., Inc., 171 Cal. App. 4th 1277 (2009) (Franco I).  That procedural and factual history is extensive, and I won't summarize it.  The opinion also contains a footnote indicating that it invited comment on D.R. Horton, but because Franco did not respond to the request, the Court declined to address the impact of that matter.

 The decision also has an exhaustive review of arbitration decisions in the context of statutory claims.  After that history, the Court examined the reach of the Concepcion.  An extended portion of the Court's analysis cited approvingly to a law review analysis: Gilles & Friedman, After Class: Aggregate Litigation in the Wake of AT&T Mobility v. Concepcion (2012) 79 U.Chi. L.Rev. 623.

Ultimately, after looking at the Question Presented in Concepcion, the Court concluded that, in this case, Franco lacked the means, not the incentive, to pursue his claims.  That distinction, the Court held, justified the trial court's decision to deny the petition to compel arbitration.

Then, tucked right into the end of the opinion, the Court offered a monumental observation that would have had great significance if the Court had considered D.R. Horton:

Which brings us to the subject of Concepcion's effect, if any, on PAGA claims. We have already concluded that Athens Services's arbitration agreement — the MAP — contains two unenforceable clauses: the class action waiver and the prohibition on acting as an attorney general. (See Franco I, supra, 171 Cal.App.4th at pp. 1297–1300, 1303; fn. 2, ante.) Those clauses operate independently of each other: One restricts Franco‘s pursuit of his rest and meal period claims while the other prohibits his recovery under the PAGA. Together, they render the MAP tainted with illegality, making it unenforceable and permitting Franco to adjudicate his claims in a judicial forum. (See Franco I, at p. 1303; fn. 2, ante.) Concepcion does not preclude a court from declaring an arbitration agreement unenforceable if the agreement is permeated by an unlawful purpose.

Slip op., at 64.  See that?!  Right there?!  This Court gets it!  If you impose a contract that violates the law (e.g., the NLRA), then the contract is unenforcable in Court on the general ground of illegality.  Any contract that violates the NLRA, not just arbitration agreements, is void and unenforceable.  How hard is this, really?  And here we finally see a Court clearly articulate the illegality defense analysis, but the Court declined to address the NLRA argument because one of the parties was too busy to answer.  Wonderful.

Of course, this case may vanish for years when it gets sucked up into the California Supreme Court's Gentry re-examination.

Arguelles-Romero v. Superior Court explains rules in Gentry and Discover Bank

If you were an arbitration agreement, this is your moment in the spotlight.  In Arguelles-Romero v. Superior Court (May 13, 2010), the Court of Appeal (Second Appellate District, Division Three) granted a petition for a writ of mandate after the trial court ordered the plaintiff to submit to individual arbitration.  The trial court also ruled that a class action waiver provision in the automobile financing contract was not unconscionable.  That finding by the trial court prompted the Court of Appeal to spend a good deal of time discussing the two different tests presented in the California Supreme Court cases of Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005) (Discover Bank) and Gentry v. Superior Court, 42 Cal. 4th 443 (2007) (Gentry).  The Court of Appeal held:

While we hold the trial court did not err in finding the class action waiver was not unconscionable, we also conclude that it should have also performed a discretionary analysis on whether a class action is a significantly more effective practical means of vindicating the unwaivable statutory rights at issue. We therefore grant the petition and remand with directions.

Slip op., at 2.  To provide some context, the Court stated the basic standard of review as follows:

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97 (Armendariz).) Under both federal and California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the voiding of any contract. (Id. at p. 98 & fn. 4.) Unconscionability is a recognized contract defense which can defeat an arbitration agreement. (Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099.)

Slip op., at 12.

Cutting right to it, here is the first money quote:

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