Vindication of Statutory Rights Loophole to Arbitration Is Closed
In an April 25, 2012 post, we suggested, based on Kinecta Alternative Financial Solutions, Inc. v. Superior Court of Los Angeles County, (2012) (partially published) (District 2, Div. 3), that “the rule in Gentry [42 Cal.4th 443 (2007)] allowing for invalidation of class arbitration waiver where nonwaivable statutory rights are at issue manages to maintain [a] toehold.” No longer, according to Division Two of the Second District. In Iskanian v. CLS Transportation Los Angeles, LLC, Case No. B235138 (2nd Dist. Div. 2 June 4, 2012) (Boren, P.J., author) (certified for publication) a labor code violations case, the Court of Appeal interprets AT&T Mobility v. Concepcion broadly to hold that the Federal Arbitration Act “conclusively invalidates the Gentry test” for finding that a statutory right is unwaivable and cannot be arbitrated.
The Court of Appeal agrees that “Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them.” It rejects the “public policy rationale” and the vindication of statutory rights rationale of Gentry as “irrelevant in the wake of Concepcion.”
The Court also declines to follow D.R. Horton, 357 NLRB No. 184 (2012), a case that held that a mandatory, employer-imposed agreement requiring all employment-related disputes to be resolved by arbitration, violated the National Labor Relations Act. Because the FAA is not a statute the NLRB is charged with interpreting, the Court of Appeal concluded that it was under no obligation to defer to the NLRB’s analysis.
The Court of Appeal also disagreed with the majority opinion in Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011). Brown held that the Concepcion holding does not apply to representative claims under the Private Attorney General Act of 2004 (“PAGA”), allowing a private citizen to pursue civil penalties on behalf of the State of California Labor and Workforce Development Agency.
“We recognize that the PAGA serves to benefit the public and that private attorney general laws may be severely undercut by application of the FAA,” said the Court of Appeal, adding: “But we believe that the United States Supreme Court has spoken on the issue, and we are required to follow its binding authority. . . . Following Concepcion, the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement.”
This is an active area of the law. Kinecta, Brown, and Iskanian create a sharp split in authority. As fellow-blogger Kimberly Kralowec says about Iskanian in her post today in the UCL Practitioner, “We should all watch this case to see if the California Supreme Court takes it up.”