For years, the California Supreme Court was one of the strongest forces against arbitration in the country. A disproportionate number of the U.S. Supreme Court’s decisions addressing preemption under the Federal Arbitration Act have reversed decisions of the California state courts or of federal courts applying California law. A recent pro-arbitration decision (Pinnacle Museum Tower Ass’n v. Pinnacle Market Development (US), LLC, 54 Cal.4th 223, 145 Cal.Rptr.3d 514 (2012)) suggests that the tide may be turning.
We will soon find out. The court this week granted review in another major arbitration case, Iskanian v. CLS Transportation of Los Angeles, No. S204032. The new grant gives the court the opportunity to weigh in on several issues in the wake of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Concepcion held that the Federal Arbitration Act (FAA) preempted a California-law doctrine refusing enforcement to arbitration clauses that required individual arbitration and precluded class-wide dispute resolution.
Three issues in Iskanian are most prominent.
First is whether Concepcion spells the end of another California anti-arbitration doctrine, announced in Gentry v. Superior Court, 42 Cal.4th 443 (2007), under which courts would not enforce class-action waivers in employee arbitration agreements under a theory of unwaivable state statutory rights. The decision under review in Iskanian (pdf) held that Gentry does not survive Concepcion; other panels have doubted Gentry’s validity but were unwilling to declare it overruled.
The second major issue produced a square split between court of appeal panels: whether, under Concepcion, the FAA permits courts to refuse to enforce agreements requiring individual arbitration when the plaintiff seeks to bring a “representative” action under the California Labor Code’s Private Attorney General Act (PAGA).
Third, the state supreme court will have an opportunity to determine whether a litigant waives the right to arbitrate by abandoning efforts to enforce a clause that is unenforceable under current law, but becomes enforceable after a change in controlling authority. (The employer in Iskanian acquiesced in litigation after its initial success in compelling arbitration was reversed after Gentry was decided.) This is a significant issue in the wake of Concepcion; virtually all federal courts to consider the issue have held that because it was futile to try to compel arbitration on an individual basis prior to Concepcion, defendants that proceeded to defend cases in court did not waive their right to compel arbitration post-Concepcion.
The California law addressing the enforceability of arbitration agreements appears poised for significant development and, possibly, change. Other aspects of the enforceability of arbitration clauses are before the court in Sanchez v. Valencia Holding Co. LLC, S199119, Sonic-Calabasas A, Inc. v. Moreno, S174475 (which the U.S. Supreme Court remanded for further consideration in light of Concepcion), and Wisdom v. Accentcare, Inc., S200128. (My colleagues and I filed an amicus brief (pdf) in Sonic-Calabasas on behalf of the Chamber of Commerce of the United States.)