It may soon be up to the California Supreme Court to determine the applicable scope of AT&T Mobility v. Concepcion (131 S. Ct. 1740 (2011)) in California.  Specifically at issue is the Second Appellate District’s ruling in Iskanian, which created multiple conflicts within California courts.  Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012) (available here).  As expected, the plaintiffs’ attorneys have filed a Petition for Review (available here), arguing the necessity of California Supreme Court intervention to resolve the numerous conflicting decisions.

The Petition for Review casts the Iskanian decision as a distinct outlier in California law, focusing on several new splits of authority within the California courts engendered by the Iskanian decision and requiring Supreme Court review.  Foremost, the Petitioners point out that, in Iskanian, the Second Appellate District, Division Two, rejected Brown v. Ralphs, 197 Cal. App. 4th 489 (2011), which was decided by Division Five of the same court just one year ago.  Whereas Brown held that PAGA waivers are outside the scope of the Supreme Court’s Concepcion decision, Iskanian disagreed, extending the scope of FAA preemption considerably to cover PAGA claims based on violations of employees’ workplace rights.  By ruling as it did, the Petition argues, the Iskanian court has ignored the California legislature, effectively “dismantle[ing] the entire statutory design of PAGA.”  Petition at 4.

The Petitioners also emphasize that the Iskanian decision, by purporting to invalidate the California Supreme Court’s Gentry decision (Gentry v. Super. Ct., 42 Cal. 4th 443 (2007)), upends years of California law that had treated employers’ arbitration agreements essentially as “choice-of-forum” clauses that in no case could force employees to give up their substantive rights.  Petition at 4.  The Petition asserts that Iskanian also disregards United States Supreme Court decisional law on this point, noting that the high Court “has never endorsed the notion that ‘arbitration agreements must be enforced according to their terms’ regardless of whether enforcement would eviscerate a party’s substantive rights, as the Court of Appeal did here.”  Petition at 3.  Moreover, the Petition contends that Iskanian usurps the California Supreme Court’s role by attempting to overrule the Gentry decision, a step that cannot be taken by an intermediate appellate court.  Petition at 5-6.

The Petition vividly evokes the practical considerations at stake: “If this decision takes root, California employers will demand arbitration not because of its traditional benefits of speed, cost-effectiveness and informality, but because it is a means to make any contract enforceable, thereby avoiding any liability for violations of California law.”  Petition at 8.

The Petition is expected to attract considerable amicus interest on both sides.

Last week, in one fell swoop, a Los Angeles Superior Court Judge denied a defendant’s motion for summary adjudication and motion to decertify the plaintiffs’ rest break class, granted plaintiffs’ motion for summary judgment, and issued a $90 million award to a class of 15,000 plaintiffs, while following the California Supreme Court’s landmark ruling in Brinker v. Super. Ct., 42 Cal. 4th 1004 (2012).  See Augustus v. Amer. Commercial Sec. Servs., No. BC336416 (Los Angeles Super. Ct. Jul. 6, 2012) (order granting summary judgment) (available here).  The Brinker decision, initially touted as a win for defendants, continues to favor plaintiffs alleging meal and rest break violations.

Here, the plaintiff class, made up of security guards, sought damages for missed rest periods, claiming that they were “on call” during their breaks and therefore not “relieved of all duty” as required under Brinker.  Defendants contended that, because plaintiffs were not required to carry radios during rest breaks, they were per se off duty.  See Order at 2-3.  Judge John Shepard Wiley, Jr. countered defendant’s argument, pointing out that “[t]here are many alternatives to the radio for hailing a person back to work,” and categorically agreed with plaintiffs, stating, “[p]ut simply, if you are on call, you are not on break” and “these on-call breaks are all legally invalid.”  Id. at 2-3.

Judge Wiley took the defendant to task several times in the order (to great comic effect), for citing to an unpublished opinion (id. at 2); for being critical of the length of plaintiffs’ reply brief despite having submitted an opposition brief that “included 21 small font footnotes” (id. at 3); and for arguing a due process violation despite having “had an opportunity to be heard — repeatedly, and at length” (id. at 4).

In a turn of events that illuminates what critics contend is the fundamental unfairness of arbitration proceedings, FINRA — the Financial Industry Regulatory Authority — has fired three arbitrators who found in favor of investors in a proceeding against Bank of America subsidiary Merrill Lynch in 2011.  Bloomberg News first reported the story here.  FINRA is the securities industry’s largest private dispute-resolution company, and it is specified in many arbitration clauses that private investors are bound by.

In the underlying matter, husband and wife investors alleged that Merrill Lynch was negligent in monitoring their investments, and sought over $640,000 in damages.  The case progressed through the individual arbitration process, pursuant to a mandatory arbitration clause.  Though rulings in favor of plaintiffs in arbitration are rare, and substantial awards even more so, the panel awarded $520,000 in damages to the investors.  Merrill executives complained to FINRA about the ruling, and the firings began shortly thereafter, staggered over a roughly 11-month period.  Two of the three ousted arbitrators had considerable experience.  One of the affected arbitrators, Irma Gormly, has initiated a “whistle blower” complaint with the SEC; thus far, however, the SEC has not responded.

Despite seemingly taking issue with the substance of the decision favoring investors, Merrill Lynch has made no attempt to attack the ruling itself.  No appeal has been filed, nor are there any grounds for such, according to another sacked arbitrator, Fred Pinckney.  Pinckney sums up the situation (quoted by Bloomberg News) thusly: “It’s unbelievable that they would take such an experienced panel and get rid of it.  To me, this undermines the credibility of the entire FINRA process — I didn’t say kangaroo court — but when you have three well-credentialed people, doing their job, and there were no meritorious grounds for an appeal, and we get handed the ‘black spot’ — and not all at once — it makes for a pretty cheap novel.”

Relief for consumers may be on the horizon.  The Consumer Financial Protection Bureau (CFPB), created in 2011 by the Dodd-Frank Act, is currently conducting a study into mandatory arbitration clauses and their adverse impact on consumers’ ability to seek remedies for consumer protection violations.  The study is intended to help the CFPB determine whether to issue regulations regarding the mandatory arbitration process.  The deadline to submit comments to the bureau has passed; however, the comments submitted by the public are available here.

A federal district court has denied a motion to compel arbitration, holding that arbitration would strip the plaintiffs of substantive statutory rights and that multiple individual actions would be inefficient and costly, with expert fees alone amounting to hundreds of thousands to millions of dollars.  See In re Elec. Books Antitrust Litig., No. 11-02293 (S.D.N.Y. June 27, 2012) (Opinion & Order) (available here).  The plaintiffs allege that they paid higher prices for electronic books because a group of major publishing companies conspired to artificially inflate e-book prices, in violation of the federal Sherman Antitrust Act.  See Order at 3.

One of the publisher defendants, Penguin, moved to stay the proceedings and to compel those plaintiffs who bought e-books through Amazon.com or Barnes & Noble to individually arbitrate their claims.  See id. at 3-4.  The standard agreements between these vendors and their customers provide that customers must arbitrate all disputes.  Id. at 4-5.  Additionally, the at-issue arbitration clauses require that any litigation be pursued through an individual action, rather than as a class.  Id.  After reciting the broad federal preference for arbitration embodied in the Federal Arbitration Act (FAA), the court noted that a plaintiff “may successfully invalidate an arbitration agreement that contains a class action waiver on the grounds that the agreement would prevent them from ‘effectively vindicating’ their federal statutory rights.”  Id. at 5, citing In re American Exp. Merchants’ Litig., 667 F.3d 204, 216 (2d Cir. 2012).

Southern District Judge Denise Cote concluded that enforcing the arbitration agreements would, as a practical matter, prevent the plaintiffs from vindicating their substantive rights, since the cost of litigation would be prohibitively high in relation to plaintiffs’ expected recovery.  Order at 8-9.  At this point, plaintiffs have already spent about $45,000 on experts, and stand to recoup “at most a median recovery of $540 in treble damages,” thus rendering individual arbitration completely illogical.  Id.  Judge Cote noted that the defendants “presented no serious argument to the contrary.”  Id. at 9.  As to defendants’ suggestion that plaintiffs in individual actions simply “pool resources and share the cost of expert fees,” Judge Cote responded, “[t]his argument blinkers reality.”  Id.