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.

Unconscionability is still alive and well (for now) as Court (4/1) affirms refusal to enforce arbitration clause in Goodridge v. KDF Automotive

The back and forth of arbitration rulings that dominate the topic of conversation in class actions could make one seasick.  Or at least sick and tired.  The latest contribution to the discussion comes to us compliments of Goodridge v. KDF Automotive Group, Inc. (Ord. pub. Sept. 19, 2012), in which the Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court order denying a motion to compel arbitration.  The trial court concluded that the provision was unconscionable, and thus unenforceable.

There two points of interest here.  First, the Court engaged in a straightforward unconscionability analysis, agreeing with the trial court that the agreement was designed to force car buyers into an inferior forum.  Evidently unconscionability analysis is not as dead as defendant now argue after Concepcion.

Second, the Court noted that "the circumstances (e.g., preprinted contract and arbitration clause) and issues in this case are virtually identical to those in Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th 74, review granted Mar. 21, 2012, S199119 (Sanchez)."  As the Court observed, the issues it addressed will likely be decided by the California Supreme Court.

Employment arbitration agreement upheld by Second Appellate District; employee claims must proceed on individual basis

And the war rages on without an end in sight.  In Reyes v. Liberman Broadcasting, Inc. (August 31, 2012), the Court of Appeal (Second Appellate District, Division One) reversed a trial court order denying a petition to compel arbitration.  Along the way, the Court rejected a barrage of challenges to the enforceability of the arbitration agreement or the viablity of an implied class action bar.  Here's a time-saving hint: it doesn't go well for the employee Respondent.

The Court summarized the issue like so:

The Arbitration Agreement is expressly governed by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.). The Arbitration Agreement provides that LBI and Reyes "agree to submit to final and binding arbitration all claims, disputes and controversies arising out of, relating to or in any way associated with" Reyes's employment or its termination. Specific claims identified in the Arbitration Agreement include wage claims, unfair competition claims, and claims for violation of federal, state, local, or other governmental law. (Ibid.) The Arbitration Agreement does not contain an express class arbitration waiver. However, the Arbitration Agreement does provide that "each party to the arbitration may represent itself/himself/herself, or may be represented by a licensed attorney." The Arbitration Agreement provides for "discovery sufficient to adequately arbitrate [the parties'] claims,"but authorizes the "arbitrator to impose . . . appropriate limits on discovery." Reyes signed an acknowledgment of his receipt of the Arbitration Agreement stating that he could read the Arbitration Agreement in both English and Spanish.

Slip op., at 2.  The case was litigated for just over one year before the employer indicated an intention to move to compel arbitration.

First, the Court examined whether the arbitration agreement allowed for class arbitration agreements, concluding that it did not:

Like the arbitration provision in Kinecta, the Arbitration Agreement in the instant case makes no reference to any parties other than plaintiff and defendant. It provides only for the "final and binding arbitration" of "all claims, disputes and controversies arising out of" Reyes's employment or its termination. The plain language of the Arbitration Agreement further states that each party may only represent "itself/himself/herself" or "may be represented by a licensed attorney." There is no mention of class action claims in the Arbitration Agreement. (As in Kinecta, class actions are not listed among the expressly excluded claims.) Furthermore, Reyes has not presented any evidence showing any intent by the parties to provide for class arbitration in the Arbitration Agreement. Therefore, we hold that because the plain language of the Arbitration Agreement provides only for the bilateral arbitration of Reyes's claims, the Arbitration Agreement does not authorize class arbitration. The Arbitration Agreement, like the arbitration provision in Kinecta, bars class arbitration because the parties did not agree to class arbitration.

Slip op., at 6.

Next, the Court concluded that the employer did not waive the right to petition to compel arbitration because, prior to doing so, the law in California appeared to require a class arbitration.

The Court also noted a difference of opinion as to whether Gentry was overruled by Concepcion.  However, after an extensive discussion, the Court then concluded that even if Gentry remains good law, as was the ruling in Brown v. Ralphs, the plaintiff did not meet the burden of showing all Gentry factors.

The Court then wrapped up its waiver discussion with a detailed discussion of the various factors considered in the waiver context, including delay, extent that litigation machinery was invoked, and other factors.  The Court easily concludes that waiver did not occur.

Finally, the Court discusses the NLRB's D.R. Horton decision.  While the opinion gets roughly two full pages of opninion space, there is little in the way of full analysis of the underlying premise from D.R. Horton, namely, that the NLRA renders illegal any agreement that interferes with concerted activity.  Instead, like other California appellate panels, this Court simply repeats the observation that the NLRB lacks the specific agency expertise to receive deference in its analysis of the FAA.  That may be, but no effort is made to tackle the underlying analysis supplied by the NLRB.  For example, the United States Supreme Court has held that illegal contract provisions are void. Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77-78, 102 S. Ct. 851, 856 (1982).  In Kaiser Steel, the U.S. Supreme Court held that courts need not defer to the exclusive competence of the NLRB when asked to enforce an agreement that would violate sections 7 or 8 of the NLRA.  Enforcement of an arbitration agreement that precludes class actions is enforcement of an agreement that interferes with the concerted activity right protected by the NLRA.  That application of the FAA is void due to illegality.  Illegality is a contractual defense of general application unaffected by Concepcion or the FAA.  Until a Court of Appeal directly answers this argument, supported by authority well above the NLRB's pay grade, then the lip service given to D.R. Horton is meaningless and holdings resting on that lip service rest on nothing.

A different other day, another arbitration decision: Gentry maybe not preempted

This is also a day of the week ending in the letter "Y."  Hence, a new arbitration opinion to discuss.  In Truly Nolen of America v. Superior Court (August 13, 2012), the Court of Appeal (Fourth Appellate District, Division One) examined several arbitration issues in a putative class action wage & hour matter.  Adding to the miasma of conflicting aribtration opinions in California, this Court concluded that Gentry was not preempted by Concepcion and must be followed under principles of stare decisis.  However, the Court also found that, on the factual record in the trial court, the Gentry test was not satisfied.  Instead, the Court directed the trial court to permit briefing on the issue of whether the parties' agreement includes an implied agreement to permit class arbitration.

In the trial court, defendant moved to compel arbitration.  The arbitration agreements did not contain a specific provision pertaining to the availability or unavailability of classwide arbitration.  The court granted the motion to compel arbitration, but rejected defendant's request that the court order individual arbitration, relying on Gentry v. Superior Court, 42 Cal. 4th 443 (2007).  Defendant petitioned for review.

The Court set forthan extensive history of arbitration law in California, beginning with cases before Stolt-Neilsen and Concepcion.  It is very exiting, so I will not spoil it by summarizing it here.  Then the Court discussed the impact of Concepcion on Discover Bank and Gentry.  Having concluded the history lesson, the Court had to choose from the conflicting decisions as to whether Gentry remains valid law.

Exercising caution, the Court threaded the eye of the needle, concluding that it doubted the analysis of cases finding Genry valid but agreeing with the plaintiffs that it was nevertheless obligated to follow decisions of the California Supreme Court until expressly invalidated: "On federal statutory issues, intermediate appellate courts in California are absolutely bound to follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently."  Slip op., at 23.

Having so concluded, the Court then considered whether the evidentiary record was sufficient to support a finding that the Gentry factors were present.  The Court concluded that the plaintiffs failed to connect attorney declarations with the facts of the case.  Based on an insufficient evidentiary record, the Court reversed the trial court's finding that Gentry required a class arbitration.

Next, the Court examined other contentions.  First, the Court agreed that an arbitartion agreement may include an implied agreement to class arbitration:  "Relying on Stolt-Nielsen, the courts have recognized that an implied agreement may be sufficient to support class arbitration."  (Slip op., at 33.)  Although plaintiffs did not raise the issue in the trial court, the Court concluded that they were not precluded from doing so on remand.  The Court left it to the trial court to develop the record as to whether the parties' agreement includes an implied agreement to class arbitrations.  Notably, the Court recognized that California contract law would govern the analysis of whether an implied agreement permitting arbitration agreements exists.

Next, as with several other Courts of Appeal, the Court, in cursory fashion, rejected the contention that the NLRA protects employees from the enforcement of contract provisions that would impede their right to undertake concerted activity, including class actions.  I have commented elsewhere on the paucity of analysis supplied by other Courts in California (Iskanian and Nelsen), and this Court did nothing to advance the analysis beyond more than something akin to bare assertion based on skepticism.  As an aside, even if the Court believes that its scant analysis is correct, the existence of the NLRA and the many decisions protecting class actions as concerted activity should, at minimum, supply the requisite implied intent to permit class arbitrations.  After all, the defendant could not have intended to violate the NLRA, could it?

With every class-related arbitration decision issued in California, the need for comprehensive, detailed holdings from the California Supreme Court grows.  I urge the California Supreme Court to assist parties in consumer and employment class actions by sweeping up all of these decisions and rendering a number of much needed rulings as quickly as possible.

Confusion surrounding arbitration agreements rapidly escalating in California following conflicting decisions in Hoover, Iskanian

I've been working on a project involving arbitration issues.  My uncertainty about whether to keep all of my powder dry, so to speak, caused a fair bit of my delay in commenting about two relatively new arbitration decisions from California Courts of Appeal.  In Hoover v. American Income Life Insurance Company (June 13, 2012), the Court of Appeal (Fourth Appellate District, Division Two) affirmed a trial court's denial of a motion to compel arbitration.  In Iskanian v. CLS Transportion Los Angeles, LLC (June 4, 2012), the Court of Appeal (Second Appellate District, Division Two) affirmed a trial court order granting a motion to compel arbitration and dismissing class claims.  Looks like the unremarkable results of Courts of Appeal deferring to finding of trial courts, right?  No.  So very wrong.  What these two actually do is create an explicit rift on the issue of whether statutory rights, at least in the labor context, are subject to individual arbitration.  In the process, the Iskanian Court rejects its sister-division's holding in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011) that Concepcion does not apply to PAGA's representative claims.  The Iskanian Court also refused to follow the NLRB's D.R. Horton decision that protects an employee's right to pursue class claims as a form of concerted activity.  The two cases also disagree as to the reach of Concepcion and Stolt-Neilsen. In sum, the relative clarity that existed in California following Gentry and Discover Bank is now a distant memory.  The California Supreme Court will need to resolve these issues soon, regardless of whether the United States Supreme Court takes on any of these issues in the future.

Hoover concerned a dispute as to whether an individual was misclassified as an independent contractor rather than an employee.  Hoover framed where its analysis would go very early in the opinion, with this footnote:

The conclusions we reach here avert any dependence, as urged by AIL, on two recent United States Supreme Court opinions, addressing the issue of class arbitrations for antitrust claims and consumer sales contracts. (Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) ___ U.S. ___, 130 S.Ct. 1758; AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___, 131 S.Ct. 1740.) “AT&T does not provide that a public right . . . can be waived if such a waiver is contrary to state law.” (Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 500, 502-503.) We also do not need to address the unconscionability argument and the continuing viability of Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83.)

Hoover slip op., at 3 n. 2.  From this we know that (1) Hoover views Concepcion and Stolt-Nielsen as limited to consumer sales contracts and antitrust issues respectively, and (2) Hoover views Brown v. Ralphs as correctly decided.

Hoover first discusses (extensively, if you are interested) the concept of waiver following too great a delay in moving to compel arbitration.  That discussion doesn't pave a lot of new ground.

Hoover gets interesting when it talks about the Labor Code claims asserted in the matter:

As a general rule, state statutory wage and hour claims are not subject to arbitration, whether the arbitration clause is contained in the CBA or an individual agreement. The CBA cannot waive the right to sue under applicable federal or state statutes because these statutory rights “devolve on petitioners as individual workers, not as members of a collective organization.” (Barrentine v. Arkansas-Best Freight System, Inc. (1981) 450 U.S. 728, 745, overruled on other grounds in Gilmer v.  Interstate/Johnson Lane Corp. (1991) 500 U.S. 20; Zavala v. Scott Brothers Dairy, Inc. (2006) 143 Cal.App.4th 585, 592 [rule applicable to wage claims under Labor Code and IWC wage orders].)

Hoover slip op., at 15-16.  Continuing, Hoover held:

An individual arbitration agreement also does not apply to an action to enforce statutes governing collection of unpaid wages, which “may be maintained without regard to the existence of any private agreement to arbitrate. . . .” (§ 229.) The intent is to assure a judicial forum where there exists a dispute as to wages, notwithstanding the strong public policy favoring arbitration. (Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1972) 24 Cal.App.3d 35, 43; Flores v. Axxis Network & Telecommunications, Inc. (2009) 173 Cal.App.4th 802, 811.) An exception to the general rule occurs when there is federal preemption by FAA, as applied to contracts evidencing interstate commerce. (Perry v. Thomas (1987) 482 U.S. 483, 490.)

Hoover slip op., at 17.  Statutory claims for unpaid wages may proceed in court, regardless of an agreement to arbitrate.  Zowwee!  But wait - there is an exception for contracts related to interstate commerce.  Does Hoover fit into that exception?  No, says the Hoover Court:

Based on this record, it cannot be said the subject agreement involves interstate commerce. AIL had the burden to demonstrate FAA coverage by declarations and other evidence. (Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1101; Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 213-214.) The only established facts are that Hoover was a California resident who sold life insurance policies. Even though AIL is based in Texas, there was no evidence in the record establishing that the relationship between Hoover and AIL had a specific effect or “bear[ing] on interstate commerce in a substantial way.” (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56-57.) Hoover was not an employee of a national stock brokerage or the employee of a member of a national stock exchange. (Thorup v. Dean Witter Reynolds, Inc., supra, 180 Cal.App.3d at p. 233; Baker v. Aubry (1989) 216 Cal.App.3d 1259, 1266.) Unlike the plaintiff in Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1287, Hoover did not work in other states or engage in multimillion dollar loan activity that affected interstate commerce by negotiating with a bank that was headquartered in another state. Under these circumstances, if the FAA did not apply, the exception favoring federal preemption and arbitration did not operate.

Hoover slip op., at 17-18.  So that's going to get some unmentionables in a twist.

Iskanian is, at least in spirit, the antimatter to Hoover's matter.  Iskanian involves a certified class that avoided arbitration once before, when the issuance of Gentry caused the reversal of the trial court's first Order compelling arbitration.  Following Concepcion and Stolt-Nielsen, the defendant in Iskanian tried again.  This time, the Iskanian Court affirmed the second Order compelling individual arbitration.  In the process, the Court gave Concepcion and Stolt-Nielsen the broadest possible constructions, held Gentry overruled, disregarded Brown v. Ralphs and rejected protections supplied by the NLRA and preserved by D.R. Horton.

First, regarding Gentry, Iskanian said:

Now, we find that the Concepcion decision conclusively invalidates the Gentry test. First, under Gentry, if a plaintiff was successful in meeting the test, the case would be decided in class arbitration (unless the plaintiff could show that the entire arbitration agreement was unconscionable, in which case the agreement would be wholly void). But Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them. (Concepcion, supra, 131 S.Ct. at pp. 1750-1751.) The Concepcion court held that nonconsensual class arbitration was inconsistent with the FAA because: (i) it “sacrifices the principal advantage of arbitration—informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment”; (ii) it requires procedural formality since rules governing class arbitration “mimic the Federal Rules of Civil Procedure for class litigation”; and (iii) it “greatly increases risks to defendants,” since it lacks the multilevel review that exists in a judicial forum. (Id. at pp. 1751-1752; see also StoltNielsen S. A. v. AnimalFeeds Int'l Corp. (2010) 130 S. Ct. 1758, 1775 [“a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so”].) This unequivocal rejection of court-imposed class arbitration applies just as squarely to the Gentry test as it did to the Discover Bank rule.

Iskanian slip op., at 8-9.  But the Court wasn't done:

Third, the premise that Iskanian brought a class action to “vindicate statutory rights” is irrelevant in the wake of Concepcion. As the Concepcion court reiterated, “States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.” (131 S.Ct. at p. 1753.) The sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the FAA, as expressed in Concepcion. Concepcion's holding in this regard is consistent with previously established law. (See Perry v. Thomas, supra, 482 U.S. at p. 484 [finding that § 2 of the FAA preempts Lab. Code, § 229, which provides that actions for the collection of wages “may be maintained 'without regard to the existence of any private agreement to arbitrate'”]; Southland Corp. v. Keating (1984) 465 U.S. 1, 10-11 [holding that the California Supreme Court's interpretation of the Franchise Investment Law as requiring judicial consideration despite the terms of an arbitration agreement directly conflicted with section 2 of the FAA and violated the Supremacy Clause]; Preston v. Ferrer (2008) 552 U.S. 346, 349-350 [holding, “when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA”].)

Iskanian slip op., at 9-10.  In its analysis, the Iskanian Court selectively disregarded valid federal law recognizing that vindication of statutory rights remains a basis for declining to enforce an arbitration agreement.  And all of this leaves unanswered the true foundational question: how does the federal government have the constitutional authority over a state's distribution of disputes alleging state law violations in state courts?  Even Concepcion cannot be viewed as answering that question, as it was decided in federal courts over which the federal government does have jurisdiction.  Anyhow, Iskanian had more carnage to release...

Next, the Iskanian Court rejected D.R. Horton, but without any cogent analysis as to why it was incorrectly decided. In D.R. Horton, the NLRB held that a mandatory, employer-imposed agreement requiring all employment-related disputes to be resolved through individual arbitration (and disallowing class or collective claims) violated the NLRA because it prohibited the exercise of substantive rights protected by section 7 of the NLRA.  Section 7 provides in part that employees shall have the right “to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .”  (29 U.S.C. § 157.)   The NLRB found that “employees who join together to bring employmentrelated claims on a classwide or collective basis in court or before an arbitrator are exercising rights protected by Section 7 of the NLRA.”  However, that holding was not new to D.R.Horton, as Iskanian implies.  Rather, decades of authority confirm that class and collective actions constitute protected concerted activity.  That, at least, is well-settled.

Next, Iskanian declares that since D.R. Horton analyzes laws beyond the NLRA, the Court would not defer to it.  Problematically, declining to defer is different than independently reaching the same result following a review of the relevant authority.  Here, Iskanian seems to view a right to decline to defer as a right to choose the alternative construction, absent any analysis.  Instead, the Court said:

The D.R. Horton decision identified no “congressional command” in the NLRA prohibiting enforcement of an arbitration agreement pursuant to its terms. D.R. Horton’s holding—that employment-related class claims are “concerted activities for the purpose of collective bargaining or other mutual aid or protection” protected by section 7 of the NLRA, so that the FAA does not apply—elevates the NLRB's interpretation of the NLRA over section 2 of the FAA. This holding does not withstand scrutiny in light of Concepcion and CompuCredit.

Iskanian slip op., at 13.  Iskanian is simply wrong.  D.R. Horton provided a very detailed discussion of the fact that the FAA does not authorize agreements that violate federal law, including the NLRA and related statutory provisions.  The NLRB was working squarely within its area of expertise when it concluded that an agreement interfering with section 7 rights was unenforceable as an illegal contract.  The fact that the agreement was an arbitration agreement is irrelevant.  Illegal contracts are unenforceable.  Concepcion did not change contract law precluding enforcement of illegal agreements.  Moreover, the NLRB noted in D.R. Horton that the Norris-LaGuardia Act was enacted after the FAA.  Thus, it cannot be said that the FAA "overruled" the NLRA.  Rather, if anything, the NLRA limited the FAA in that it defined a new zone of contracts that were illegal.  Iskanian Court don't care!

Next, Iskanian opined that Brown v. Ralphs was wrongly decided:

In finding that Concepcion did not apply to PAGA representative claims, the Brown majority wrote: “[Concepcion] does not purport to deal with the FAA's possible preemption of contractual efforts to eliminate representative private attorney general actions to enforce the Labor Code. As noted, the PAGA creates a statutory right for civil penalties for Labor Code violations 'that otherwise would be sought by state labor law enforcement agencies.' . . . This purpose contrasts with the private individual right of a consumer to pursue class action remedies in court or arbitration, which right, according to [Concepcion], may be waived by agreement so as not to frustrate the FAA—a law governing private arbitrations. [Concepcion] does not provide that a public right, such as that created under the PAGA, can be waived if such a waiver is contrary to state law.” (197 Cal.App.4th at p. 500.)

Respectfully, we disagree with the majority's holding in Brown. We recognize that the PAGA serves to benefit the public and that private attorney general laws may be severely undercut by application of the FAA. But we believe that United States Supreme Court has spoken on the issue, and we are required to follow its binding authority.

Iskanian slip op., at 15.  Again, Iskanian avoids any analysis of authority that might undercut its decision.  Vindication of statutory rights is currently a recognized basis for declining to enforce an arbitration agreement.  All Iskanian does is point at Concepcion and declare that it is following it.  In doing so, Iskanian goes too far and creates a rift in California law that requires immediate attention by the California Supreme Court.

Two cases, two contrary sets of conclusions.

Brown v. Ralphs Grocery Co. is now final final final

Assuming you fall into the camp that doesn't want to see arbitration used to destroy all collective rights (which camp includes plaintiffs' counsel explicilty and defendants' counsel covertly), here is some good  news, compliments of The UCL Practitioner.  The U.S. Supreme Court denied a petition for writ of certiorari in Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011).  In Brown, the Court of Appeal (Second Appellate District, Division Five) held that representative PAGA claims (i.e., not class-based claims) are not subject to arbitration, even post-Concepcion.  That's Concepcion, the case, not the other option (with different spelling).

Get your PAGA letters ready.

Remand of Sonic-Calabasas A, Inc. v. Moreno may provide more guidance on status of arbitration defenses in California

On Monday, October 31, 2011 (hello, Halloween), the United States Supreme Court issued the following Order:

10-1450 SONIC-CALABASAS A, INC. V. MORENO, FRANK The petition for a writ of certiorari is granted. The judgment is vacated, and the case is remanded to the Supreme Court of California for further consideration in light of AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011).

In Sonic Calabasas A, Inc. v. Moreno (2011), reported at 51 Cal. 4th 659, a divided California Supreme Court (4-3) concluded that (1) "Berman" hearings are an unwaivable statutory right, (2) arbitration is an acceptable alternative to de novo review by the Superior Court, (3) a waiver of the right to a "Berman" hearing before the Labor Commissioner is against public policy, and (4) the waiver of a "Berman" hearing is unconscionable under standard contractual principles of unconscionability analysis.

What does this mean?  It means that the underpinnigs of Gentry may be explored in the follow-up opinion.  It also means that the new Justices, including the new Chief Justice of the California Supreme Court, may be deciding votes, given that Chief Justice George was in the majority and Justice Moreno authored the original opinion. 

In Sanchez v. Valencia Holding Company, LLC, Court slays arbitration agreement, comments on Concepcion and Armendariz

With AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740 (2011) in the bank and earning interest, the new defense playbook includes a renewed, direct assault on Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000).  But in Sanchez v. Valencia Holding Company, LLC (October 24, 2011), the Court of Appeal (Second Appellate District, Division One) stongly declared the ongoing viability of Armendariz after Concepcion.  In other words, Concepcion is to state law unconscionability analysis as tap water is to vampires - no effect.

 The allegations are easy to summarize.  Plaintiff Sanchez wanted to buy a used Mercedes.   The dealer charged him $3,700 to have the vehicle "certified" as eligible for a lower interest rate.  That was a lie.  The charge was for an undisclosed and optional extended warranty.  The dealer charged him new tire fees when not all of the tires were new.  Plaintiff was also told that the vehicle was a "certified" used Mercedes, having been through a rigorous inspection and maintenance process.  That was also a lie.  Sanchez filed a class action alleging, among other things, violations of the CLRA, ASFA, UCL, Song-Beverly Act, and Public Resources Code section 42885.

Valencia moved to compel arbitration. The trial court denied the motion, stating that the CLRA expressly provides for class actions and declares the right to a class action to be unwaivable.   (See Civ. Code, §§ 1781, 1751.) As a consequence, the class action waiver in the arbitration provision was unenforceable. Further, because the agreement included a poison pill clause, the unenforceability of the class action waiver made the entire arbitration provision unenforceable.   The trial court therefore denied the motion. Valencia appealed.

The Court of Appeal began its discussion by summarizing its conclusion:

We do not address whether the class action waiver is unenforceable. Rather, we conclude the arbitration provision as a whole is unconscionable: The provision is procedurally unconscionable because it is adhesive and satisfies the elements of oppression and surprise; it is substantively unconscionable because it contains terms that are one-sided in favor of the car dealer to the detriment of the buyer. Because the provision contains multiple invalid terms, it is permeated with unconscionability and unenforceable. Severance of the offending terms is not appropriate. It follows that the case should be heard in a court of law.

Slip op., at 10.  Next, focusing on Concepcion and Armendariz, the Court said:

Before applying Armendariz to the present case, we note that Concepcion, supra, 131 S.Ct. 1740, does not preclude the application of the Armendariz principles to determine whether an arbitration provision is unconscionable. Concepcion disapproved the "Discover Bank rule," stating:  "In Discover Bank, the California Supreme Court applied [the doctrine of unconscionability] to class-action waivers in arbitration agreements and held as follows: [¶]  '[W]hen the [class action] waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then . . . the waiver becomes in practice the exemption of the party "from responsibility for [its] own fraud, or willful injury to the person or property of another." Under these circumstances, such waivers are unconscionable under California law and should not be enforced.'" (Concepcion, at p. 1746, italics added.) With the exception of the Discover Bank rule, the Court acknowledged that the doctrine of unconscionability is still a basis for invalidating arbitration provisions. (Concepcion, at pp. 1746, 1747; see Kanbar v. O’Melveny & Myers (N.D.Cal. 2011) 2011 U.S. Dist. Lexis 79447, pp. *15–*16, *23–*24, 2011 WL 2940690, pp. *6, *9.) Thus, Concepcion is inapplicable where, as here, we are not concerned with a class action waiver or a judicially imposed procedure that conflicts with the arbitration provision and the purposes of the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1–16). (See Concepcion, at pp. 1748–1753.)

Slip op., at 11-12.  In the balance of the opinion, the Court found procedural unconscionability (one-sided and surprise) and substantive unconscionability (several terms favoring dealer).  The Court then concluded that some of the substantive defects could not be cured by striking provisions.

The Court explicity declined to address the issue of whether the CLRA rendered the class action waiver provision unenforceable.

Justice Rothschild concurred in the judgment.