On October 26, 2015, the California Court of Appeal, Second Appellate District affirmed a Los Angeles County Superior Court decision denying a defendant’s motion to compel arbitration. See Garrido v. Air Liquide Indus. U.S. LP, No. B254490, 2015 Cal. App. LEXIS 946 (2nd Dist. Div. 2 Oct. 26, 2015) (slip opinion available here). In doing so, the court applied a test from Gentry v. Superior Court, 42 Cal. 4th 443 (2007), a once-prominent case widely thought to be obsolete in the wake of Concepcion (AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2007)) and Iskanian (Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014)). Gentry was, for a time, the leading California case on the enforceability of class action waivers in arbitration agreements. While Concepcion did not specifically overrule Gentry, many courts treated it as such, and the California Supreme Court put to rest any doubts in Iskanian, stating: “a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA [Federal Arbitration Act]. . . [and] our holding to the contrary in Gentry has been abrogated by recent United States Supreme Court precedent.” Iskanian at 359-360 (internal citations omitted).
Despite the broad reach of the FAA and the Concepcion line of cases enforcing class action waivers in arbitration agreements, Garrido followed and affirmed an important exception for certain employees established by Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). Section 1 of the FAA specifically exempts “transportation workers,” such as the plaintiff in Garrido, who was a truck driver who shipped goods for the defendant across state lines. The appellate court in Garrido reasoned that the FAA could not preempt Gentry where the FAA did not apply. Instead, it found that the California Arbitration Act (CAA) applied, and where only the CAA applies, actions to collect due and unpaid wages under California Labor Code section 229 (which would be preempted under the FAA) can be maintained in court. Thus, the Garrido court held that preemption principles did not come into play, and the Gentry’s holding that public policy is a valid defense to enforcement of an arbitration agreement remains viable under the CAA.
In Gentry, the California Supreme Court articulated four factors to determine whether a class action waiver should be enforced in pre-dispute employment arbitration agreements: “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’ right to overtime pay through individual arbitration.” Gentry at 463. Utilizing this analysis, both the trial court and appellate court in Garrido ultimately found the arbitration agreement unenforceable due to a lack of a sufficient alternative to a class action, because: (1) the plaintiff’s likely recovery was a modest $11,000; (2) evidence showed that many of the defendant’s truck drivers felt that their jobs were in jeopardy and (3) were ignorant of their rights to breaks; and (4) requiring numerous employees suffering the same harm to separately seek vindication is inefficient and would drive up the costs of arbitration. See slip op. at 12-13.
Interestingly, the Second Appellate District, Division Two, which issued the recent Garrido decision, was the same court that held in a 2012 Iskanian appeal that Gentry was overruled by Concepcion. “Now, we find that the Concepcion decision conclusively invalidates the Gentry test.” Iskanian v. CLS Transportation Los Angeles, LLC, 206 Cal. App. 4th 949, 959 (Cal. App. 2d Dist. 2012).
Jonathan Lee, Associate
CAPSTONE LAW APC