Diverging from other California authority, the Fourth Appellate District, Division Three, holds that the FAA preempts the CLRA's ban on class action waivers
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Opinions concerning arbitration issues seem less about uniformity of analysis these days and more about the politics of arbitration. Sophistry comes to mind. Consider the following observation: "Section 2 of the Federal Arbitration Act (FAA) provides that an arbitration provision 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' 9 U.S.C. § 2." AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753, 179 L. Ed. 2d 742 (2011), J. Thomas conc. This seems straightforward enough. And yet, in Caron v. Mercedes-Benz Financial Services USA LLC (July 30, 2012), the Court of Appeal (Fourth Appellate District, Division Three), managed to conclude that the Consumer Legal Remedies Act (CLRA) prohibition on class action waivers in any consumer contract was pre-empted by the FAA. A rule prohibiting class action waivers in any form of consumer contract is, according to this reasoning, not a ground in law for the revocation of such contracts. It is, instead, a provision that "interferes" with the FAA.
I could walk through the analysis and discuss it in a neutral and dispassionate tone, but that would waste precious minutes of my life. Blunt will serve just as well here. The reasoning in Caron is nonsensical. The Supreme Court claims that its FAA jurisprudence is intended only to "place arbitration agreements on an equal footing with other contracts...." Concepcion, 131 S. Ct. at 1742. That's not what is happening here. Instead, the FAA is being used to grant a superior status to arbitration agreements. Case in point? The Caron decision:
Defendants argue the trial court erred because the FAA preempts the CLRA's prohibition against class action waivers and therefore the trial court could not rely on the CLRA as a ground for denying Defendants' petitions. Based on the United State Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___, ___; 131 S.Ct. 1740 (AT&T Mobility), we agree the FAA preempts the CLRA's anti-waiver provision because the provision acts as an obstacle to the FAA's intention of enforcing arbitration agreements according to their terms.
Slip op., at 2. What? The FAA, in section 2, limits the FAA's reach. The Caron Court doesn't ensure that an arbitration agreement is judged on an equal footing with other contracts. It is placing arbitration agreements before a state's right to specify the lawful subject matter of contracts. The reasoning used in Caron could be used to vitiate section 2 of the FAA. After all, every defense to a contract is an "obstacle" to the FAA's intention of enforcing arbitration agreements according to their terms, even if those terms are unlawful. Caron dismisses this limitation on the FAA's reach by simply concluding that the case before it presents the same situation as Concepcion:
The plaintiffs in AT&T Mobility “argue[d] that the Discover Bank rule, given its origins in California's unconscionability doctrine and California's policy against exculpation, is a ground that 'exist[ed] at law or in equity for the revocation of any contract' under FAA § 2” and therefore the FAA did not preempt the rule. (AT&T Mobility, supra, 131 S.Ct. at p. 1746.) The Supreme Court rejected that argument, explaining the FAA's preemptive effect may “extend even to grounds traditionally thought to exist '"at law or in equity for the revocation of any contract[]"'" when those grounds “have been applied in a fashion that disfavors arbitration.” (Id. at p. 1747.)
Slip op., at 13. From this, the Caron Court concludes that the same reasoning would apply here. However, that distorts the facts. In Caron, the agreement at issue contained the following "poison pill" clause:
If any part of this Arbitration Clause, other than waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. If a waiver of class action rights is deemed or found to be unenforceable for any reason in a case in which class action allegations have been made, the remainder or this Arbitration Clause shall be unenforceable.
Slip op., at 4. This agreement anticipates the potential illegality of the clause at issue. By its own terms, the agreement chooses to reject arbitration if it must occur in the class context. There is no law banning arbitration here. There is a general rule govering consumer contracts that specifies the lawful terms of those agreements. The agreement contains a self-executing kill switch. Had the agreement been silent, the Stolt-Neilsen analysis should have concluded that, aware of California law, the parties anticipated the potential for a class action. But how the Court concludes that the CLRA's regulation of consumer contracts constitutes "interference" with consumer contracts sufficient to pre-empt the CLRA's general regulation of consumer contracts is beyond me.
Section 2 of the FAA is not a nugatory clause. Efforts to interpret it out of existence should be rejected. Given that Caron diverges from Fisher v. DCH Temecula Imports LLC, 187 Cal. App. 4th 601 (2010), it appears that further guidance from the California Supreme Court would benefit parties to consumer contracts.
