The agreement provided for reasonable discovery, a written award, and judicial review of the award. Costs unique to arbitration, such as the arbitrator's fee, were to be paid by CLS. The arbitration agreement also contained a class and representative action waiver, which read: “[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.”Slip op. at 2-3.
In 2006, the plaintiff filed a putative class action for wage and hour violations. CLS moved to compel individual arbitration and dismiss the class allegations, and the trial court (Los Angeles Superior, Judge Robert Hess) granted the motion. After the plaintiff appealed, the California Supreme Court issued its decision in Gentry v. Superior Court (2007) 42 Cal.4th 443, holding that class waivers in arbitration agreements should not be enforced if “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” The Court of Appeal reversed the trial court's order and remanded for reconsideration in light of Gentry. On remand, CLS withdrew its motion to compel arbitration.
After the United States Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, --- S.Ct. ----, 2011 WL 1561956 (4/27/11) (discussed here), CLS renewed its motion, and the trial court again granted it. The Court of Appeal affirmed, issuing a number of rulings of great interest to class action practitioners.
Of note is the fact that the Court heard the issue on appeal because the order dismissing class allegations constituted the "death knell" for the class action. In re Baycol Cases I & II (2011) 51 Cal.4th 751, 757 (discussed here). Slip op. at 4.
After reviewing the Federal Arbitration Act (FAA), California arbitration law, and Concepcion, the Court turned its attention to Gentry. The Court rejected the plaintiff's argument that Concepcion did not overturn Gentry, and that the trial court should have relied on Gentry to deny the motion, holding that Concepcion "conclusively invalidates the Gentry test. " First, the Court held that invalidation of the class action waiver would result in class arbitration, "But Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them." Slip op. at 8, citing StoltNielsen S. A. v. AnimalFeeds Int'l Corp. (2010) 130 S. Ct. 1758, 1775 (blogged here). Second, although the Court agreed that Gentry "rested primarily on a public policy rationale, and not on Discover Bank's unconscionability rationale," this "does not mean that Gentry falls outside the reach of the Concepcion decision." Slip op. at 9. Third, "the premise that Iskanian brought a class action to 'vindicate statutory rights' is irrelevant in the wake of Concepcion.... 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." Slip op. at 9-10.
Interestingly, the Court held: "Iskanian did not contend that the arbitration agreement was unconscionable on a basis governing all contracts, rather than a basis premised on the uniqueness of arbitration. Our opinion, therefore, is not inconsistent with Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th 74, 87-89, review granted March 21, 2012, S199119, in which Division One of this Court held that an arbitration provision was unconscionable for reasons that would apply to any contract in general." Slip op. at 10, fn 4. It will be very interesting to see whether the California Supreme Court issues a grant-and-hold order here pending Sanchez.
The Court next turned its attention to the NLRB's recent decision in D.R. Horton (discussed here). Because D.R. Horton construes not only the NLRA, but also the FAA, the Court declined to follow it. Relying on Concepcion and CompuCredit Corp. v. Greenwood, __ U.S. __ (2012) (discussed here), the Court held that the NLRB in D.R. Horton
After the United States Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, --- S.Ct. ----, 2011 WL 1561956 (4/27/11) (discussed here), CLS renewed its motion, and the trial court again granted it. The Court of Appeal affirmed, issuing a number of rulings of great interest to class action practitioners.
Of note is the fact that the Court heard the issue on appeal because the order dismissing class allegations constituted the "death knell" for the class action. In re Baycol Cases I & II (2011) 51 Cal.4th 751, 757 (discussed here). Slip op. at 4.
After reviewing the Federal Arbitration Act (FAA), California arbitration law, and Concepcion, the Court turned its attention to Gentry. The Court rejected the plaintiff's argument that Concepcion did not overturn Gentry, and that the trial court should have relied on Gentry to deny the motion, holding that Concepcion "conclusively invalidates the Gentry test. " First, the Court held that invalidation of the class action waiver would result in class arbitration, "But Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them." Slip op. at 8, citing StoltNielsen S. A. v. AnimalFeeds Int'l Corp. (2010) 130 S. Ct. 1758, 1775 (blogged here). Second, although the Court agreed that Gentry "rested primarily on a public policy rationale, and not on Discover Bank's unconscionability rationale," this "does not mean that Gentry falls outside the reach of the Concepcion decision." Slip op. at 9. Third, "the premise that Iskanian brought a class action to 'vindicate statutory rights' is irrelevant in the wake of Concepcion.... 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." Slip op. at 9-10.
Interestingly, the Court held: "Iskanian did not contend that the arbitration agreement was unconscionable on a basis governing all contracts, rather than a basis premised on the uniqueness of arbitration. Our opinion, therefore, is not inconsistent with Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th 74, 87-89, review granted March 21, 2012, S199119, in which Division One of this Court held that an arbitration provision was unconscionable for reasons that would apply to any contract in general." Slip op. at 10, fn 4. It will be very interesting to see whether the California Supreme Court issues a grant-and-hold order here pending Sanchez.
The Court next turned its attention to the NLRB's recent decision in D.R. Horton (discussed here). Because D.R. Horton construes not only the NLRA, but also the FAA, the Court declined to follow it. Relying on Concepcion and CompuCredit Corp. v. Greenwood, __ U.S. __ (2012) (discussed here), the Court held that the NLRB in D.R. Horton
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.Slip op. at 13.
The Court next addressed Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489 (discussed here), which held that Concepcion does not apply to a plaintiff's representative claims under the Private Attorneys General Act ("PAGA"). Disagreeing with Brown, the Court held:
Interestingly, the Court held that the plaintiff may pursue his individual PAGA claims in arbitration. The Court disagreed with the holding in Reyes v. Macy’s Inc. (2011) 202 Cal.App.4th 1119, 1123-1124 (blogged here) that employees may only bring PAGA claims on a representative basis. "We do not believe that an individual PAGA action is precluded by the language of the [PAGA]." Slip op. at 17, fn. 6.
Finally, the Court held that CLS did not waive its right to demand arbitration by withdrawing its motion to compel arbitration after the California Supreme Court's decision in Gentry.
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.Slip op. at 15, citing Southland Corp. v. Keating, 465 U.S. 1, 10-11 (1084) and Kilgore v. KeyBank, N.A. (9th Cir. 2012) 673 F.3d 947. "Following Concepcion, the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement. The FAA preempts any attempt by a court or state legislature to insulate a particular type of claim from arbitration." Slip op. at 17.
Interestingly, the Court held that the plaintiff may pursue his individual PAGA claims in arbitration. The Court disagreed with the holding in Reyes v. Macy’s Inc. (2011) 202 Cal.App.4th 1119, 1123-1124 (blogged here) that employees may only bring PAGA claims on a representative basis. "We do not believe that an individual PAGA action is precluded by the language of the [PAGA]." Slip op. at 17, fn. 6.
Finally, the Court held that CLS did not waive its right to demand arbitration by withdrawing its motion to compel arbitration after the California Supreme Court's decision in Gentry.
Reviewing the evidence and the history of this case, we find that the trial court did not err by declining to impose the disfavored penalty of waiver. Substantial evidence supported a finding that CLS acted consistently with its right to arbitrate. CLS originally moved to compel arbitration soon after the case was filed. It likely would have been successful in that effort if not for the issuance of Gentry while the case was on appeal.Slip op. at 19.
Iskanian is the decision that defendants have been waiting for, addressing most if not all of the plaintiffs' best post-Concepcion arguments. As with all of these cases, it will be interesting to see whether the California Supreme Court allows the decision to stand or grants review, as it has done frequently in recent controversial cases. (For example, it issued grant-and-hold orders in eight cases related to Brinker v. Superior Court.) And of course it will remain to be seen whether the United States Supreme Court allows California Supreme Court decisions to stand if it finds them incorrectly decided. (See Sonic-Calabasas A, Inc. v. Moreno (discussed here) vacating and remanding to California Supreme Court for reconsideration in light of Concepcion).
The opinion in Iskanian is available here.
The opinion in Iskanian is available here.
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