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Tuesday, July 24, 2012

Samaniego v. Empire Today: Court of Appeal Affirms Order Denying Arbitration

Another interesting battle in the Arbitration Wars: Samaniego v. Empire Today LLC (4/5/12, publ. 5/7/12) --- Cal.App.4th ---.

The plaintiffs worked as carpet installers for a subsidiary or affiliate of the defendant, Empire. Plaintiffs signed an agreement to arbitrate any dispute between them and Empire. They later filed a putative class action alleging that Empire misclassified them as independent contractors, rather than employees. Empire moved to compel arbitration. The trial Court (Alameda County Superior, Judge Steven Brick) denied Empire's motion, and Empire appealed.

The Court of Appeal affirmed. First, it found the agreement procedurally unconscionable. "The Agreement was comprised of 11 pages of densely worded, single-spaced text printed in small typeface. The arbitration clause is the penultimate of 37 sections which, in contrast to [Roman v. Superior Court (2009) 172 Cal.App.4th 1462 (discussed here)] were neither flagged by individual headings nor required to be initialed by the subcontractor." Slip op. at 6-7. In addition, Empire required the plaintiffs to sign the agreement as a condition of work, the agreement was in English, and the plaintiffs could read little or no English, and Empire did not provide them copies of the agreement or the applicable arbitration rules.

Second, the Court found the agreement substantively unconscionable. The agreement shortened the plaintiffs limitations period to six months, included one-way attorney fee shifting in favor of Empire, and exempted claims that typically would be brought by employers. Id. at 7-9.

Third, the Court held that California law applied, despite a contract clause calling for Illinois choice of law and venue. The Court held that "the same factors that render the arbitration provision unconscionable warrant the application of California law," because "the Agreement was obtained by 'improper means' and, to the extent Illinois law might require enforcement of its arbitration clause, enforcing Empire's choice-of-law provision would result in substantial injustice." Id. at 10.

Fourth, the Court held that the trial court did not err in declining to sever the objectionable portions of the agreement and enforcing the remainder.

Finally, the Court held that the Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (discussed here) does not prevent courts from rejecting arbitration agreements that they find unconscionable. "In short, arbitration agreements remain subject, post-Concepcion, to the unconscionability analysis employed by the trial court in this case." Id. at 12. 

Samaniego is available here.

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