Kinecta v. Superior Court: Court of Appeal Reverses Trial Court Order Compelling Class Arbitration

Kinecta Alternative Financial Solutions, Inc. v. Superior Court (4/25/12) --- Cal.App.4th ---, presents another interesting angle in the Arbitration Wars.

Defendant Kinecta employed plaintiff Malone. Malone signed an employment agreement that included an arbitration clause, but not a class arbitration waiver. Malone filed a putative class action against Kinecta for wage and hour violations. Kinecta moved to compel individual arbitration and to dismiss Malone's class allegations. The trial court (Los Angeles Superior, Judge Abraham Khan) denied the motion to strike class allegations and ordered the parties to arbitrate the entire dispute. Kinecta petitioned for a writ of mandate.

The Court of Appeal granted the writ. Reviewing the decisions in Discover Bank v. Superior Court (2005) 36 Cal.4th 148, Gentry v. Superior Court (2007) 42 Cal.4th 443, and AT&T Mobility LLC v. Concepcion (2011) __ U.S. __, 131 S.Ct. 1740 (discussed here), the Court noted in particular that Gentry holds:

[W]hen it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider . . . the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members' rights to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer's violations, it must invalidate the class arbitration waiver to ensure that these employees can "vindicate [their] unwaivable rights in an arbitration forum."

Gentry, 42 Cal.4th at 463. The Court declined to rule on whether Concepcion overrules Gentry, but held instead that, assuming that Gentry is still good law, Malone had not met her burden under Gentry:

Even if Gentry has not been overruled ... Malone had to provide evidence of the four Gentry factors. Plaintiff has the burden of establishing that the arbitration provision (here, limiting arbitration to bilateral arbitration) is invalid by making a factual showing of the four Gentry factors. (Brown v. Ralphs Grocery Co., supra, 197 Cal.App.4th at p. 497.) The record shows that Malone provided no evidence as to any of the four Gentry factors required to support a trial court's determination that the arbitration should proceed as a class action arbitration. Thus there is no evidence, and no substantial evidence, that plaintiff had established a factual basis that would require a declaration that the arbitration agreement was unenforceable. (Ibid.)

Slip op. at 11.

The Court then considered whether classwide arbitration was authorized under Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758, 1775–1776 (2010) (discussed here).

By denying Kinecta's motion to dismiss class allegations from Malone's complaint, the order compelling arbitration imposed class arbitration even though the arbitration provision was limited to the arbitration of disputes between Malone and Kinecta. Malone cites no evidence that despite the language of the arbitration provision, the parties agreed to arbitrate disputes of classes of other employees, employee groups, or employee members of classes identified in the complaint. The parties' arbitration agreement authorizes arbitration only of “any claim, dispute, and/or controversy that either I may have against the Credit Union (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans) or the Credit Union may have against me, arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Credit Union[.]” (Italics added.) We conclude that the parties did not agree to authorize class arbitration in their arbitration agreement. (Stolt-Nielsen, supra, 130 S.Ct. at p. 1776.) Therefore the order denying Kinecta's motion to dismiss class claims without prejudice must be reversed.

Slip op. at 13.

The Court did not consider Malone's arguments that the arbitration was unenforceable for a number of reasons because Malone did not seek review of the trial court's order compelling arbitration.

The opinion is available here.