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.

Another day, another arbitration decision; employee handbook arbitration clause found to be illusory

Because this day of the week ends in the letter "Y," I thought I would focus on another arbitration clause opinion.  See what I did there?  Anyhow, in Sparks v. Vista Del Mar Child And Family Services (July 30, 2012), the Court of Appeal (Second Appellate District, Division Five) reviewed an order denying arbitration following a petition to compel arbitration in a wrongful termination action.  Summarizing the various reasons why the Court, in a split decision, affirmed, the majority opinion said:

We hold that plaintiff is not bound by the arbitration clause because that clause was included within a lengthy employee handbook; the arbitration clause was not called to the attention of plaintiff, and he did not specifically acknowledge or agree to arbitration; the handbook stated that it was not intended to create a contract; the handbook provided that it could be amended unilaterally by defendant and thus rendered any agreement illusory; the specific rules referred to in the arbitration clause were not provided to plaintiff; and the arbitration clause is unconscionable.

Slip op., at 2.

The case raises a number of interesting issues debated by the majority and dissent.  Does an employee handbook that disavows that it is intended to create a contract undermine an employer's reliance on an arbitration provision within that handook?  Does inadequate access to discovery in the arbitration render the agreement unconscionable?

On that last question, the dissent argued that certain rights are imputed into the agreement:

Sixth, the agreement is not unconscionable because of any problem relating to discovery. Plaintiff argues the American Arbitration Association rules do not permit for the sufficient use of discovery devices. Implied in an employer-employee arbitration agreement is the opportunity to utilize discovery devices in a case which potentially may involve emotional distress damages. (§ 1283.1; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076-1081; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 105-106.) Here, there is a cause of action for intentional severe emotional distress infliction. Implied within the arbitration agreement is the right to adequate discovery.

Slip op., dissent, at 3-4.  I'm confused.  If we are implying terms into agreements, why, again, is the CLRA's ban on class action waivers not implied in every consumer contracts involving transactions in goods or services?  (I am referring to Caron and its holdings regarding preemption of the CLRA's anti-class waiver provision by the FAA, if that was not clear.)  Oh, I remember now.  In that case, the parties contractually agreed that they wouldn't arbitrate if the class waiver provision was not lawful.  Now it makes sense.  Huh?

The decisions interpreting arbitration provisions have, if anything, become substantially less clear in the last two years.  The result is that every conceivable argument on both sides of any arbitration issue will be flung at the wall in every trial court, and recapitualated in the Courts of Appeal after any petition is denied.  This is not helping anyone to control the costs and uncertainty of litigation.

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.

Another arbitration-friendly decision from the U.S. Supreme Court in CompuCredit Corp. v. Greenwood

Today the United States Supreme Court issued its decision in CompuCredit Corp. v. Greenwood (Jan. 10, 2012).  At issue was whether a sentence in that act, at 15 U. S. C. §1679c(a), which says, "You have a right to sue a credit repair organization that violates the [Act]," preserves the right to sue in court.  Because the Credit Repair Organizations Act is silent as to whether claims may be heard in an arbitration forum, the Court held, 8-1, that the arbitration agreement in question should be enforced according to its terms.  Justice Ginsburg dissented strongly, and the short concurring opinion by Justices Sotomayor and Kagan stated that the case was a much closer call than the majority opinion suggests, noting good points raised in the dissenting opinion of Ginsburg.  In particular there seems to be a strong disagreement about whether Congressional intent must be explicitly stated or may be inferred from a consistent set of statements suggesting a specific intent.  Not much more to say about this, other than to note that its essentially a tautology that the majority gets to decide whether they see a clear Congressional intent or not.  If they say there isn't an intent, then they are right by default.

Disagreeing with a sister Court of Appeal, Wisdom v. Accentcare, Inc. wisely finds arbitration agreement unconscionable

The fact that equally learned Courts of Appeal reach fundamentally different results from similar circumstances either confirms that minute differences in fact are all that are needed to change the result on tough legal issues (the "aren't we important in the legal field" explanation) or confirms that we're all making this pseudo-science of law up as we go along (the "likely" explanation).  In Wisdom v. Accentcare, Inc. (July 3, 2012), a Court of Appeal (Third Appellate District) examined an arbitration clause included within an application for unemployment.  The trial court concluded that the application was unenforceable, given its substantial procedural and substantive unconscionability.  The Court of Appeal agreed.

Procedural unscionability was obvious to the Court:

In this case, the preemployment arbitration agreement is procedurally unconscionable. “[F]ew employees are in a position to refuse a job because of an arbitration requirement.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 115.)

Slip op., at 2.  The Court found additional evidence of procedural unconscionability in the agreement "because its language implied there was no opportunity to negotiate, because the rules of any arbitration were not spelled out in the agreement or attached thereto, and because plaintiffs did not understand they were waiving their right to a trial, nor was that fact explained to them."

The Court then found substantive unconscionability because of the lack of mutuality:

The lack of mutuality is made apparent by contrast to a different application form, also employed by AccentCare, which provided that “in exchange for my agreement to arbitrate, AccentCare, Inc. also agrees to submit all claims and disputes it may have with me to final and binding arbitration . . . .” “[I]n the context of an arbitration agreement imposed by the employer on the employee, such a one-sided term is unconscionable.” (Armendariz, supra, 24 Cal.4th at p. 118.)

Slip op., at 2-3.

Much of the discussion includes a more detailed discussion of the various deficiencies identified by the trial court.  Of particular note, though, was the Court's mention of an opinion from the Second Appellate District, Division Seven, which reached a different result in similar but not identical circumstances:

We are aware that Division 7 of the Second Appellate District examined a nearly identical arbitration agreement in Roman, supra, 172 Cal.App.4th at page 1470-1471, and held that the procedural unfairness was “limited[.]” Roman reasoned that there was little evidence of surprise since the arbitration provision was “contained on the last page of a seven-page employment application,” and “was set forth in a separate, succinct (four-sentence) paragraph that Roman initialed, affirming she had seen it.” (Id. at p. 1471.)

Here, however, even though plaintiffs undoubtedly saw the arbitration paragraph when they initialed it, their declarations state they did not know what “binding arbitration” meant, no one explained it to them, and they were unaware they were giving up their right to trial. There was no evidence any of the plaintiffs were sophisticated in legal matters. This, combined with the non-negotiable, take-it-or-leave-it circumstances surrounding the application for employment, result in a strong showing of procedural unconscionability.

Slip op., at 10-11.  Then, when discussing substantive unconscionability in the form of one-sidedness, the Court's criticism of Roman is more pointed:

Defendants rely on Roman, supra, which held that an agreement containing nearly identical language was bilateral. (172 Cal.App.4th at p. 1473.) But Roman, supra, did not explain its reasons for concluding that the agreement at issue in that case was bilateral. Instead, the court distinguished Higgins, supra, on the ground that the procedural unconscionability in Higgins had been “far greater[.]” (Id. at pp. 1472-1473.)

To the extent Roman implies that the agreement in Higgins was not substantively unconscionable due to its one-sidedness, it is wrong. Higgins, supra, discussed at some length the fact that the “I agree” language of the contract indicated that only the siblings had agreed to the arbitration clause, and stated only briefly that “[a]dditional elements of substantive unconscionability” were to be found in the provision barring only the siblings from seeking appellant review of some claims and the provision requiring arbitration in accordance with the rules of the American Arbitration Association. (Higgins, supra, 140 Cal.App.4th at p. 1254.)

Slip op., at 14-14.

While I may be biased from my own success before Division Seven, I generally like the analyses in that Division's opinions.  But it is hard to find fault with this Court's critique of Roman. 

In NAACP of Camden County East v. Foulke Management Corp., New Jersey appellate court finds reasons to distinguish Concepcion

When you stamp down too hard, stuff leaks out the sides.  AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) was the boot.  Since then, we've been waiting to see what would leak out the sides.  There has been a good deal of discussion about the ramifications of Concepcion.  While Concepcion may make things harder for class actions, the severity of the opinion is also inspiring interesting challenges to arbitration agreements on many fronts.  In NAACP of Camden  County East v. Foulke Management Corp. (August 2, 2011), the Appellate Division of the New Jersey Superior Court concluded that convoluted and inconsistent arbitration provisions in an automobile purchase contract could not be enforced, reversing the trial court's order directing the matter to individual arbitration.

The opinion focused heavily on the concurring opinion of Justice Thomas for its conclusion that a confusing consumer contract provision related to arbitration would not be enforced:

Thus, in the aftermath of AT&T Mobility, state courts remain free to decline to enforce an arbitration provision by invoking traditional legal doctrines governing the formation of a contract and its interpretation. Applying such core principles of contract law here, we must decide whether there was mutual assent to the arbitration provisions in the dealership's contract documents. As part of that assessment, we must examine whether the terms of the provisions were stated with sufficient clarity and consistency to be reasonably understood by the consumer who is being charged with waiving her right to litigate a dispute in court.

Slip op., at 31.  The Court found ample evidence for the proposition that the consumer could not have reasonably understood the arbitration provisions.  The Court did take a moment to opine that the trial court was correct when it found that a class action waiver could not be invalidated on public policy grounds.  But the Court then found that the issue was irrelevant to the outcome, since the provisions were unenforcable on formation grounds.

Fourth Appellate District, Division Three, scoffs at notion that Concepcion preempts all state unconscionability law

As soon as a blockbuster decision hits the street, zealous litigators work to stretch it as far as it can go.   AT&T Mobility LLC v. Concepcion (April 27, 2011) is getting that elastic band treatment right now.  For example, AT&T Mobility (Concepcion) was the subject of a brief aside in Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (July 25, 2007).  In a lawsuit between an insured and the insurer, a motion to compel arbitration of a dispute arising out of the policy was denied by the trial court.  The Court of Appeal reversed and remanded for further proceedings regarding a claim of unconscionability.  In the course of the discussion, the Court said:

We invited the parties to provide their comments on the recent United States Supreme Court case, AT&T Mobility LLC v. Concepcion (2011) __ U.S. __ [131 S.Ct. 1740] (AT&T). Defendants appear to argue that AT&T essentially preempts all California law relating to unconscionability. We disagree, as the case simply does not go that far. General state law doctrine pertaining to unconscionability is preserved unless it involves a defense that applies "only to arbitration or that derive[s] [its] meaning from the fact that an agreement to arbitrate is at issue." (Id. at p. __ [131 S.Ct. at p.1746].) This simply does not apply here.

Slip op., at 13, n. 4.  The Court then concluded that the asserted unconscionable provisions in the arbitration agreement could be dealt with by the trial court when it considered any motion to sever provisions:

The specific provisions that plaintiffs raise — regarding arbitration in San Francisco, the even split of the cost, and the nonarbitrability of discretionary decisions — can be the subject of a motion to sever before the trial court if the parties cannot reach agreement on the terms of arbitration. (Civ. Code, § 1670.5, subd. (a).) Although we may decide this issue as a matter of first impression (see Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1251), given the relative lack of factual development as to these issues, we believe that deference to the trial court would better serve the ends of justice.

Slip op., at 15.

So there you have it from the Fourth Appellate District, Division Three: AT&T Mobility (Concepcion) doesn't preempt all California law on the subject of contractual unconscionability.  They didn't even break a sweat figuring that out.  Interestingly, this is the second decision (Brown v. Ralphs being the first) that asked for supplemental briefing on AT&T Mobility (Concepcion) but issued a decision that is relatively unaffected by it. 

Concepcion has no application in many employment cases

About a week ago, on behalf of Consumer Attorneys of California ("CAOC"), I filed an amicus curiae brief in support of the plaintiff in Brown v. Ralphs Grocery Company.  In Brown, after oral argument, the Court of Appeal requested supplemental briefs on the question of whether AT&T Mobility LLC v. Concepcion (April 27, 2011) precludes the Gentry v. Superior Court (2007) 42 Cal.4th 443 defense to certain arbitration agreements.  After determining that the parties had not already addressed the issues, CAOC presented several bases for rejecting the contention that Concepcion overruled Gentry, including the fact that a bar on class actions violates the National Labor Relations Act's protection of concerted action by employees to improve their wages and working conditions.  You can view the brief viat the Spiro Moss website here.

Other attorneys at Spiro Moss contributed to the brief, including Dennis F. Moss (who conceived of the argument involving the NLRA), Gregory N. Karasik, and J. Mark Moore.  David M. Arbogast of Arbogast & Berns LLP also contributed to CAOC's brief.

Update on 2011-06-30 19:36 by The Complex Litigator

An error in the post title was corrected.