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Tuesday, November 27, 2012

Franco v. Arakelian Enterprises: Court of Appeal Holds That Gentry Remains Good Law After Stolt-Nielsen and Concepcion

This is the second time that this case has resulted in a published appellate decision. The first time, in Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, the Court of Appeal held: 
  1. Gentry v. Superior Court (2007) 42 Cal.4th 443, invalidated a class action waiver in an action for meal and rest period compensation; and 
  2. Gentry invalidated an arbitration clause prohibiting an employee from acting as a private attorney general under the Labor Code Private Attorneys General Act (PAGA). 
On remand, the defendant again moved to compel arbitration, arguing that Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. ___ and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ overruled Gentry. The trial court denied the petition, and the Court of Appeal affirmed, holding: 
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. 
Franco v. Arakelian Enterprises, Inc. (11/26/12) --- Cal.App.4th ---, slip op. at 3.  With regard to the second point, the Court explained: 
Stolt-Nielsen held that class arbitration is not permitted unless the parties have expressly or implicitly agreed to it.  Gentry, on the other hand, concerned the enforceability of class action waivers that prevent the vindication of unwaivable statutory rights and that constitute exculpatory clauses.  Nevertheless, Gentry concluded that, if a class action waiver is unenforceable, the court should invalidate the waiver and send the case to arbitration, where the plaintiff may attempt to certify a class. But under Stolt-Nielsen, class arbitration is not permitted unless the parties agree to that procedure.  Plainly, in a case where Gentry applies — to invalidate a class action waiver — the parties have not agreed in any fashion to allow class arbitration.  Consequently, under Stolt-Nielsen, the remedy under Gentry should be the denial of the motion or petition to compel arbitration, permitting the case to be heard in court, where the plaintiff may seek to certify a class.  
Slip op. at 47 (citations omitted). 

The decision includes a thorough discussion of the Supreme Court's development of arbitration law, slip op. at 17-27, and the law on vindication of statutory rights.  Slip op. at 27-45. It also includes an interesting discussion of Concepcion and post-Concepcion decisions and commentary.  Slip op. at 47-64. 

I assume that the defendant will petition the California Supreme Court for review. As discussed here, the Supreme Court on 9/19/12 granted review in Iskanian v. CLS Transportation L.A., LLC (6/4/12) 206 Cal.App.4th 949, which held that Concepcion overruled Gentry and that Concepcion applies to PAGA actions. It will be interesting to see whether the Court grants review in Franco pending Iskanian

The opinion is available here.  

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