Iskanian v. CLS Transp.

The California Supreme Court has a reputation for hostility to arbitration, especially in the consumers and employment context. Much of the arbitration docket of the United States Supreme Court over the past 30 years has involved reversals of California Supreme Court decisions refusing to enforce arbitration agreements, most recently (and perhaps most notably) in AT&T Mobility v. Concepcion (in which the authors were counsel). Even when seemingly compelled to enforce an arbitration provision in the face of recent U.S. Supreme Court authority, the California court has often found a way to carve out some exception to arbitration in the particular case or to offer suggestions to plaintiffs seeking to avoid arbitration in a future case. A prime example is the 2014 decision in Iskanian v. CLS Transportation, which exempted from arbitration all wage-and-hour civil-penalty claims under the Private Attorney General Act.

The decision in Sanchez v. Valencia Holding Co. (pdf) represents a welcome break from this pattern, upholding an arbitration agreement against an array of unconscionability challenges without finding it necessary to sever even a single clause to render the agreement enforceable. Although every point decided in Sanchez is consistent with recent U.S. Supreme Court authority applying the Federal Arbitration Act, however, the opinion’s emphasis on the specific factual setting may seed further efforts to evade arbitration agreements . As so often is the case, the devil is often in the details.

Continue Reading Man Bites Dog: California Supreme Court unanimously rejects unconscionability challenge to consumer arbitration provision

Today is Halloween, an occasion when our thoughts turn to jack o’lanterns, ghosts, and zombies.  We are particularly fascinated by zombies—the dead returned to life. But we’re not the only ones.  In a decision earlier this week, a majority of the National Labor Relations Board voted to reanimate the dead.

The Board’s zombie of choice?  Its decision nearly three years ago in D.R. Horton (pdf), in which the Board sought to push back on arbitration agreements that require individual arbitration rather than class or collective actions.  As our readers know by now, most courts have accepted the Supreme Court’s clear and emphatic message that the Federal Arbitration Act protects the right of contracting parties to agree to resolve any disputes through arbitration on an individual basis.  But the NLRB, which hears complaints alleging unfair labor practices, came to a different conclusion in D.R. Horton, concluding that individual arbitration interferes with the right of employees to engage in “concerted activities” under Section 7 of the National Labor Relations Act— and that its interpretation of the NLRA trumps the FAA.  Yet, for reasons we—along with many other critics—have discussed, that approach gets it exactly backward.  The Supreme Court has held that the FAA takes precedence in the absence of a contrary congressional command.  Nothing in the NLRA itself (as opposed to the Board’s own policy views) evinces a clear congressional command to override the FAA.  And the Board itself cannot override a congressional enactment like the FAA.

For these reasons, the Board’s D.R. Horton ruling has been rejected by almost every court to consider it: by the Fifth Circuit (on direct review), by the Second Circuit, by the Eighth Circuit, by more than a dozen federal district courts, and— most recently— by the California Supreme Court.

But the Board, rather than acquiescing in the face of this avalanche of judicial authority, has sought to resurrect it.  Earlier this week, by a 3–2 vote, the Board issued its decision in Murphy Oil USA (pdf), reaffirming D.R. Horton and rejecting the views of the courts.  The Board dismissed most of the contrary authority in cavalier fashion—disparaging the Second and Eighth Circuit’s decisions for their “abbreviated” analysis, and refusing to engage with the California Supreme Court’s decision or any federal district court decision because those courts don’t typically exercise direct review over Board decisions.

As for the Fifth Circuit’s decision, the Board complained that the court gave “too little weight to [Board] policy” and that “[t]he costs to Federal labor policy imposed by the Fifth Circuit’s decision would be very high.”  But this assessment simply underscores the error in the Board’s ways:  An agency’s general policy views, no matter how strongly felt, cannot override the powerful congressional mandate favoring the enforcement of arbitration agreements that is embodied in the FAA.  And even though the Board has authority to set policy under the NLRA, the Board’s view of what the FAA requires is not entitled to any weight at all, because Congress has never given the agency authority to interpret or administer that statute.

In response to the Fifth Circuit’s legal analysis, the Board did little more in Murphy Oil than repeat its view— resting on nothing more than the Board’s say so in D.R. Horton— that the right to engage in “concerted activities” under Section 7 includes an unwaivable substantive right to class-action procedures.  But nothing in the text of the NLRA commands or even suggests that result.  Although the Board purported to find an “inherent conflict” between the NLRA and the FAA, the purported conflict in fact arises only from the Board’s questionable interpretation of the NLRA, not from anything inherent in the statute itself.  At bottom, the Board’s position rests on its own view of federal labor policy, not any congressional command, and an agency’s views cannot override what Congress enacted in the FAA.  (Moreover, as the Fifth Circuit pointed out, the agency’s insistence that the purported right to class-action procedures is a nonwaivable substantive right under the NLRA is questionable even on its own terms.)

The Board’s decision will not be the last word on this matter.  As in D.R. Horton, this latest decision is subject to direct review by a federal court of appeals, which will be free to reject the Board’s position and deny enforcement of its order.  Given the weight of judicial authority rejecting D.R. Horton and the Board’s failure to respond to that authority in a convincing manner, the Board’s position will likely continue to be met with skepticism in the courts.  For now, however, employers that use arbitration agreements with their employees may face possible challenges from the Board or from employees seeking to pursue class or collective actions.  In short, the D.R. Horton zombie will continue to stalk the land for the immediate future.

In the wake of AT&T Mobility LLC v. Concepcion, the California Supreme Court granted review in three cases involving significant arbitration issues, including key questions about whether the Federal Arbitration Act preempts California law concerning the enforceability of arbitration agreements.

My colleagues and I have filed amicus briefs on behalf of the Chamber of Commerce of the United States in all three cases, the most recent of which is Iskanian v. CLS Transportation, No. S204032.

In Iskanian, the Second District of the California Court of Appeal had affirmed an order compelling individual arbitration in a putative class/representative action alleging, among other things, that the defendant had failed to pay overtime and provide required meal and rest breaks. For more background on the grant of review and the decision below, please see our prior blog post here.

The Chamber’s amicus brief (pdf) to the California Supreme Court explains why the court of appeal was correct.

Continue Reading U.S. Chamber of Commerce Files Amicus Brief On Arbitration Issues In Key California Supreme Court Case

The California Supreme Court granted review last week in Franco v. Arakelian Enterprises Inc., No. S207660, in which the California Court of Appeal had refused to enforce an agreement to arbitrate on an individual basis in the context of a wage-and-hour class action. For more on Franco, please see our prior post. The California Supreme Court explained that it will hold its disposition of Franco pending its decision in Iskanian v. CLS Transportation of Los Angeles, another case involving arbitration and wage-and-hour class actions. We have discussed Iskanian in more detail in a prior post.  (We’ve also reported (pdf) on the Court of Appeal’s decision in Iskanian.)

The grant of review in Franco is good news for employers. Many plaintiffs’ lawyers have pointed to Franco in their efforts to avoid arbitration and instead proceed with wage-and-hour class actions in California state courts. And—although we think that Franco is misguided—at least some state courts have been listening. The grant of review in Franco renders the decision non-citable in California courts.