April 11, 2013

How Much Mileage Can You Get Out of Your Arbitration Agreements?

Right now, the answer to that question just depends on your appetite for risk.  If you are risk adverse and do not want to have to update your arbitration agreement again within the next year or so, you should hold tight until the California Supreme Court issues its decisions in a few pending arbitration cases that will attempt to reconcile federal and state law on arbitration.

All was relatively stable in California arbitration law until two years ago when the U. S. Supreme Court started to issue decisions in conflict with it.  The decision currently wreaking havoc with certainty in California arbitration law is AT&T Mobility, LLC v. Concepcion, 563 U.S. __ (2011).  In that case, the U. S. Supreme Court held that it was permissible to have arbitration agreements that bar individuals from bringing class action lawsuits.  This was decidedly not okay under existing California law (Gentry v. Superior Court, 42 Cal. 4th 443 (2007)).  In two pending cases, Iskanian v. CLS Transportation Los Angeles, LLC, 206 Cal. App. 4th 949 (2012) and Caron v. Mercedes-Benz Financial Services, 208 Cal. App. 4th 7 (2012), the California Supreme Court will look at the issue of whether Concepcion changed California law on class action waivers.  Early money is on the California Supreme Court keeping California law as it currently stands and attempting to distinguish Concepcion.

In Iskanian, the California Supreme Court granted review of the Court of Appeal’s decision, relying on Concepcion to enforce a class action waiver.  Iskanian has been de-published pending the California Supreme Court’s decision.  Similarly, in Caron v. Mercedes-Benz Financial Services, the California Supreme Court granted review of a decision that held that federal law trumps state law to allow class action waivers.  The Court of Appeal had reversed an order denying a petition to compel arbitration, holding that the Federal Arbitration Act preempts the Consumer Legal Remedies Act prohibition on class action waivers.  The California Supreme Court deferred briefing of the case pending its decision in Iskanian.

In two other cases, the California Supreme Court will look at whether Concepcion’s interpretation of the Federal Arbitration Act (“FAA”) allows the FAA to preempt state law on the issue of when mandatory arbitration provisions are enforceable.  One is even an employment case.  In Mayers v. Volt Management, Volt appealed after the Court of Appeal upheld the denial of its petition to compel arbitration in the matter.  Plaintiff Stephen Michael Mayers filed a lawsuit against his former employer alleging several claims under the California Fair Employment and Housing Act.  Volt filed a motion to compel arbitration based on plaintiff’s agreement to submit employment-related claims to final and binding arbitration, as evidenced by his signed employment application, employment agreement, and acknowledgment of receipt of the employee handbook.  The trial court denied the motion on the grounds that the arbitration provisions were unconscionable in that they required the plaintiff to submit employment-related claims to arbitration pursuant to the “applicable rules of the American Arbitration Association in the state” where plaintiff had been employed by Volt and Volt did not provide plaintiff with a copy of the rules or advise him how he could find or review the rules.  The trial court also found fault with the fact that the arbitration provisions did not specifically identify which set of AAA rules would apply.  The arbitration provisions also stated that the “arbitrator shall be entitled to award reasonable attorney’s fees and costs to the prevailing party.”  The Court of Appeal found that such a provision exposed plaintiff to greater liability than he would have faced in court.  Volt then appealed to the California Supreme Court.  After granting review, the Court ordered briefing deferred pending its decision in Sanchez v. Valencia Holding Co. LLC, 201 Cal. App. 4th 74 (2011), which will decide the same FAA preemption issue.

If you want to make sure your current arbitration agreement complies with California law, are ready to test the waters by issuing an arbitration agreement for the first time, or want to push the envelope a bit, feel free to contact us.


Category: Arbitration,