Posts belonging to Category Arbitration

The California Supreme Court will soon determine the applicable scope of AT&T Mobility v. Concepcion vis-à-vis the state’s longstanding unconscionability doctrine, as the court has granted a petition for review of the Second Appellate District’s ruling in Iskanian v. CLS Transp. Los Angeles, LLC (___ Cal. App. 4th ___ (2012) (available here)). The Iskanian court rejected Brown v. Ralphs (197 Cal. App. 4th 489 (2011)), which held PAGA claims to be outside the ambit of Concepcion, and also took the position that the California Supreme Court’s decision in Gentry v. Super. Ct. (42 Cal. 4th 443 (2007)) was overruled by Concepcion.

The Supreme Court’s review of Iskanian is expected to produce the definitive ruling on the post¬Concepcion applicability of California’s arbitration and unconscionability doctrines. The court contemporaneously denied petitions for review and depublication in Hoover v. Amer. Income Life Ins. Co. (___ Cal. App. 4th ___ (2012) (available here)), in which California’s Fourth Appellate District upheld a trial court’s denial of defendant’s motion to compel arbitration of classwide wage-and-hour claims. This may be an indication that the court is poised to overrule the aggressive Iskanian decision while allowing the Hoover decision to stand, a scenario sure to delight the plaintiffs’ bar.

This past February, California’s Fourth Appellate District issued an opinion where it declined to broadly interpret the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision in the employment context. See Mayers v. Volt Management, No. G045036, ___ Cal. App. 4th ____ (available here). In June, the California Supreme Court agreed to take up the case, but further action is deferred pending disposition in a case from the Second Appellate District, Sanchez v. Valencia Holding Co. (201 Cal. App. 4th 74 (2011)), which addresses a related issue in the consumer context.

The question presented in Sanchez is: “Does the Federal Arbitration Act, as interpreted in AT&T Mobility LLC v. Concepcion, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?” (citations omitted). Sanchez is now fully briefed, but oral argument has not been scheduled.

In the underlying Mayers suit, the plaintiff alleged California Fair Employment and Housing Act (FEHA) violations against his former employer. The defendant responded by attempting to compel arbitration, relying on its standard arbitration clause which was included in its employment application, employment agreement, employee handbook, and ADR policy, all of which were ostensibly received by and consented to by Plaintiff in the course of his job application and orientation process. See slip op. at 3-7. The trial court denied the defendant’s motion to compel arbitration, and a unanimous panel of the Fourth Appellate District’s Division Three upheld the ruling. See id. at 12-19.

The Mayers panel rejected the defendant’s argument that even if the contested clauses were unconscionable, as the plaintiff had argued and the trial court had ruled, such terms could be severed while preserving the overall arbitration provision. See id. at 2-4. The Court of Appeal detailed the ways in which the asymmetric, unconscionable terms and procedures so pervaded the at-issue terms as to render them fatal to any enforcement of the arbitration clause: (1) the plaintiff was not provided a copy of the arbitration rules governing the process, nor told how to find them; (2) the arbitration provisions failed to identify the specific American Arbitration Association (AAA) rules that applied; and (3) the provisions included a prevailing party attorney fees term which would expose Plaintiff to greater liability for fees than if he pursued the claims in court. Thus, the court found the arbitration provisions to be unconscionable and therefore unenforceable, and stated that “[b]ecause the unconscionable terms cannot be severed from the rest of the arbitration provisions, plaintiff cannot be compelled to arbitrate his claims against defendant.” Id. at 3.

Though many have questioned whether California’s unconscionability doctrine would continue to have vitality in the wake of Concepcion, Mayers and Sanchez represent key decisions in the increasingly formidable post-Concepcion bulwark against the enforcement of arbitration clauses or terms deemed unconscionable. In Sparks v. Vista Del Mar Child and Family Servs. (available here), California’s Second Appellate District reached a substantially similar conclusion, holding that the plaintiff was not bound by an arbitration clause buried within a lengthy employee handbook.

The California Supreme Court’s decisions in Mayers and Sanchez are expected to bring much-needed clarity to California’s post-Concepcion landscape.

United States District Court Judge Stefan Underhill has issued a ruling that augments the growing body of law rebuffing defendants’ attempts to use the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion to force plaintiffs seeking classwide relief into individual arbitration. See Fromer v. Comcast Corp., No. 09-02076 (D. Conn. Aug. 21, 2012) (ruling on motion to compel arbitration) (available here).

Comcast customer Robert Fromer filed the class action in 2009, alleging that the company violated antitrust laws by bundling its digital voice service with a modem, essentially forcing subscribers to rent the modem. Comcast sought to use Concepcion to force the plaintiff to arbitrate his claims pursuant to the arbitration clause in his subscriber agreement, which included a class action waiver. Judge Underhill denied Comcast’s motion and found the ban on classwide arbitration to be void, since it would “effectively preclude[] Fromer from pursuing federal statutory remedies.” Fromer at 11. Judge Underhill cited the cost of individual litigation versus the potential gain for plaintiffs, stating that “Fromer can expect to recover approximately $1 for every $202 spent in litigation.” Id. at 10.

The ruling follows a similar decision by the 2nd Circuit Court of Appeals (available here) holding that American Express could not invoke its arbitration clause in an antitrust lawsuit filed by merchant customers.

In a recent ruling involving employer-employee arbitration agreements, the California Court of Appeal has again demonstrated the continuing vitality of California’s unconscionability doctrine, despite the U.S. Supreme Court’s aggressively pro-arbitration ruling in AT&T Mobility v. Concepcion. See Jara v. JP Morgan Chase Bank, No. B234089 (Cal. Ct. App. Jul. 30, 2012) (order affirming denial of motion to compel arbitration) (available here).

Just as it did in Sparks v. Vista Del Mar, the Second Appellate District upheld a trial court ruling that an arbitration agreement between the defendant employer and plaintiff employee was both procedurally and substantively unconscionable. Order at 5-7. The plaintiff, then 60 years old and of Mexican and Filipino background, filed a complaint against her former employer, JPMorgan, alleging harassment and wrongful termination. JPMorgan moved to compel arbitration based on a company-drafted arbitration agreement which was among the many papers signed by Jara at the outset of her employment. The trial court denied JPMorgan’s motion and the Court of Appeal affirmed.

The panel found that the at-issue arbitration agreement lacked mutuality and impermissibly limited discovery, to the extent that “[t]he discovery limits imposed upon Jara here, combined with other one-sided and harsh terms, constituted substantive unconscionability.” Id. at 7. The court also agreed that the plaintiff’s assent to the standard JPMorgan arbitration agreement was obtained by procedurally unconscionable means: “We conclude that the agreement is procedurally unconscionable because it was presented on a take it or leave it basis and did not include copies of the arbitration rules.” Id.

While the panel acknowledged that the evidence as to procedural unconscionability was rather meager, they nonetheless found that, “[w]here, as here, the arbitration agreement is permeated with substantive unconscionability, a minimal showing of procedural unconscionability is sufficient to render the agreement unenforceable.” Id.