Iskanian v. CLS: Court of Appeal Ruling Sets Up Supreme Court Showdown Regarding Breadth of Concepcion

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California’s Second Appellate District has affirmed a trial court’s order which interpreted AT&T Mobility v. Concepcion, compelled arbitration, and dismissed the claims of a certified class. This ruling has created a split that the California Supreme Court might ultimately have to resolve. See Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012), available here.

The Court of Appeal held that “the Concepcion decision conclusively invalidates the Gentry test [promulgated in Gentry v. Super. Ct., 42 Cal. 4th 443 (2007)].” Slip op at 8. In Concepcion, the U.S. Supreme Court expressly overruled the California Supreme Court decision in Discover Bank v. Super. Ct., a consumer class action in which the at-issue arbitration agreement had been stricken as unconscionable. Whether Concepcion also pertained to wage and hour class actions remained unclear, as it was Gentry that had articulated the unconscionability test applicable in the context of wage and hour claims. In holding Gentry overruled, Iskanian is in conflict with at least two other Court of Appeal decisions.

First, Brown v. Ralphs Grocery Co. (197 Cal. App. 4th 489 (2011)) held that claims for civil penalties brought pursuant to PAGA, the California Labor Code’s Private Attorneys General Act, are outside the ambit of Concepcion, and the California Supreme Court subsequently declined to review Brown, rendering the decision final. Yet the Iskanian court rejected this decision, the three-judge panel noting, “we disagree with the majority’s holding in Brown. 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.

Second, although the Second Appellate District held in Kinecta Alternative Financial Solutions, Inc. v. Super. Ct. (___ Cal. App. 4th ___ (2012)) that Gentry “appears to remain the binding law in California,” the Iskanian panel unequivocally states in its holding that Gentry was overruled by Concepcion. See slip op. at 8.

The Iskanian court also rejected the National Labor Relations Board’s decision in D.R. Horton (357 NLRB No. 184 (2012)), which held that a mandatory waiver of class claims imposed by an employer, requiring that individual arbitration be the sole means of resolving employment-related disputes, violated the National Labor Relations Act. See slip op. at 11-12.

A petition for review and spirited exchange of amicus briefs are expected.