California Mediation and Arbitration

Arbitration/Waiver/CCP 1281.2: Six-Year Delay In Seeking Arbitration Results In Waiver Of Right To Arbitrate

L.A. Law:  Top-Notch Law Firm Claimed Delayed Discovery Of Arbitration Agreement, But Court of Appeal Wasn’t Buying It

     Snippets of the trial court record selected by the Court of Appeal can be very telling.  Here, the trial court, troubled by defendants’ claim of delayed discovery of an arbitration agreement, observed:  “I guess one of my problems on this case is I have a problem figuring out how nobody knew there was an arbitration agreement for six years.  And I think too highly of the law firms involved, frankly, to think that nobody ever asked that question.  And of course, I have the business of plaintiff turning over a copy of it . . . They produced a copy of it.  For you to argue that that wasn’t enough, I think that’s a hard fact for you guys to get around and I see why you’re trying.”  Wolf v. Loring Ward Int’l, Ltd., Case No. B238428 (2nd Dist. Div. 3 Feb. 21, 2013) (Klein, P.J., author 3:0) (unpublished).

     The plaintiff, Christine Wolf, sued her financial advisors following her divorce from Dick Wolf, creator of the Law and Order television franchise, claiming defendants “failed to disclose the most significant asset in the marital estate –the vested contractual right to a percentage of income in future licensing of Law and Order and its spinoffs.”  Litigation commenced in 2005, and wended its way through federal and state courts.

     Basic principles governing waiver of the right to arbitrate are that it is generally a question of fact, the burden of proof is upon the person asserting waiver, and the trial court’s finding, if supported by substantial evidence, is binding on the appellate court.

     The bottom line here?  “By any standard, the six-year delay in seeking arbitration was egregious.”  The trial court’s finding of waiver was supported by substantial evidence, resulting in affirmance of the order denying the motion to compel arbitration.   

 

Doink Doink

Arbitration/Employment/Waiver/FAA: First District, Div. 1, Affirms Judgment Compelling Employee To Arbitrate, Alone, With Macy’s Department Stores, Inc.

Court of Appeal Is Skeptical About Gentry, But Avoids Addressing Gentry Factors, Because Record Was Lacking

 

    

Macy’s Department Store’s Flagship location in Manhattan, New York.  Carol M. Highsmith Collection.  Library of Congress.

     The issue of the enforceability of class action waivers and compulsory arbitration in employment disputes is before the California Supreme Court by virtue of its grant of review in Iskanian v. CLS Transportation Los Angeles, LLC, 206 Cal.App.4th 949 (2012) (review granted Sept. 6, 2012, S204032).  See my June 5, 2012 post on Iskanian.  Meanwhile, the Courts of Appeal must still deal with cases that present those issues, sometimes skirting the issues.  Our next case, Outland v. Macy’s Department Stores, Inc., A133589 (1st Dist. Div. 1 January 16, 2013) (Margulies, J., author) (unpublished), concerns a class action brought on behalf of California residents employed as group sales managers for Macy’s, alleging they were not compensated for overtime and for missed meal and rest periods, because they were improperly classified as exempt.

     The trial court granted Macy’s motion to enforce an arbitration agreement with a class action waiver.  Plaintiff appealed, contending that AT&T Mobility, LLC v. Concepcion, 131 S.Ct. 1740 (2011) was distinguishable, and that dismissal of her class claims could be avoid by relying upon Gentry v. Superior Court, 42 Cal.4th 443 (2007), and D.R. Horton, Inc., a decision of the National Labor Relations Board (NLRB).

     Courts that take the position that Gentry is still good law point out Gentry did not establish “a categorical rule that invalidates class action waivers – the type of rule that Concepcion condemned.”  Franco v. Arakelian Enterprises, Inc., 211 Cal.App.4th 314, 368 (2012).  See my November 27, 2012 post on Franco.  Unfortunately for plaintiff here, however, “plaintiff did not submit any evidence to the trial court concerning the Gentry factors.”  Thus, there was no basis on the record for finding the class action waiver unconscionable.

     The Court also says, somewhat cryptically, that notwithstanding another decision, Truly Nolen of America v. Superior Court, 208 Cal.App.4th 487 (2012), recognizing that Concepcion was inconsistent with Gentry, “we conclude we must follow Concepcion.”   See my August 13, 2012 post on Truly Nolen.  It is unclear how following Gentry is necessarily inconsistent with Concepcion, because Concepcion does not abolish unconscionability as a defense to arbitration.  In Outland, the Court explains that there is no basis in the record “for finding the class action waiver unconscionable.”  But if application of the Gentry factors, based on evidence, had led to a finding that the class action waiver was unconscionable, how would that be inconsistent with Concepcion?

     Finally, like a number of other courts (including the Iskanian court) that have considered the issue, the Court of Appeal was not persuaded by the ruling in D.R. Horton., a case that held that the NLRA barred mandatory waivers of class arbitration over wages, hours, and working conditions.  A ruling by the NLRB was not binding on the California courts.  Nor did the Court of Appeal believe that the NLRB has any special expertise in the area of arbitration and class action waivers.

     Judgment affirmed.

Arbitration/Waiver: Post-Judgment Post-Appeal Post-Concepcion Request To Arbitrate Comes Too Late

Issue Presented Is One Of First Impression And Perhaps Sui Generis

     Our next case presents as a “threshold matter” an arbitration issue that turns out to be one of first impression.  Guitierrez v. Wells Fargo Bank, N.A., Case Nos. 10-16959 and 10-17468 (9th Cir. Dec. 26, 2012) (McKeown, J.) (published).  Wells Fargo sought to compel arbitration in a case after certain issues had been decided adversely to it, arguing that it would have been futile to seek to compel arbitration before the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) (holding that the Federal Arbitration Act preempted California’s Discover Bank rule that had rendered class-wide arbitration waivers unenforceable in consumer cases involving unequal bargaining power and large numbers of small consumer claims).    However, Wells Fargo litigated at length before seeking to arbitrate after Concepcion was decided.  “The effect of Concepcion, as intervening Supreme Court law, on a judgment on appeal after trial, is an issue of first impression.”

     The Ninth Circuit waiver of arbitration test is a three-factor test requiring:  “(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.”  Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691 (9th Cir. 1986).

      Wells Fargo’s strongest argument was that any “existing right” could exist only after Concepcion.  However, the Ninth Circuit believed that the futility of an arbitration demand was “not clear cut here” because “[i]n contemporaneous consumer litigation, litigants did succeed in compelling arbitration despite the existence of the Discover Bank rule.”  (Note:  For a discussion of a California case, Sprint v. Phillips, in which the court concluded a pre-Concepcion effort to arbitrate would have been futile, see my September 27, 2012 post).  This allowed the Court to focus on readily apparent prejudice to plaintiffs – time, expense, delay and uncertainty – given “Wells Fargo’s invocation of arbitration five years into this litigation . . . “

      But the Fisher analysis was not the only argument in favor of rejecting the belated effort to invoke arbitration.  The Court believed that belated arbitration here would be inconsistent with “the overarching purpose of the FAA . . . to facilitate streamlined proceedings.”  Concepcion, 131 S.Ct. at 1748.

      Finally, on the facts, denying arbitration seemed consistent with contractual intent.  The arbitration clause was only “permissive”, not mandatory.  Either party could demand arbitration, but was not required to do so.  And Wells Fargo “never made a demand for arbitration, raised it as a defense, or even mentioned it until after the Concepcion decision, at which point the trial was over and the district court had issued its judgment.” 

     The Court has suggested that its ruling on the arbitration issue is likely to be limited:  “This is an unusual, perhaps sui generis, case in which the specific circumstances counsel this result.”

     By the way, the main ruling in the case is interesting.  Wells Fargo was sued for engaging in a practice of posting payments to checking accounts in a particular order (highest to lowest amounts) so as to maximize the number of overdrafts and the amount of overdraft fees.  The panel held that the bank’s decision to post payments to checking accounts in a particular order is a federally authorized pricing decision, and that the National Bank Act preempted affirmative disclosure requirements and liability based on nondisclosure.  But the National Bank Act does not preempt claims for affirmative misrepresentations under the fraudulent prong of California’s Unfair Competition Law.

     

     

Arbitration/Employment/FAA/Class Action/Waiver: Second District, Division 1 Holds That Gentry Is Not Overruled By Concepcion or Stolt-Nielsen

Gentry Rides Again!

      Franco v. Arakelian Enterprises, Inc., Case No. B232583 (2nd Dist. Div. 1 Nov. 11, 2012) (Mallano, J.) (published) is a long, scholarly opinion, containing a probing analysis of what may now be the hottest arbitration issue: how to resolve the collision between a class action waiver in arbitration and vindication of unwaivable statutory rights.  Franco involves wage and hour, meal and rest period claims brought by an employee as a putative class action. 

      Gentry v. Superior Court, 42 Cal.4th 443 (2007) resolved the class action waiver issue with a multi-factor test, which when satisfied, results in the unenforceability under some circumstances of an arbitration agreement class action waiver, because the waiver would interfere with the employees’ ability to vindicate statutory rights.  (We note, as does Justice Mallano, that vindication of unwaivable statutory rights and unconscionability have resulted in the application of two lines of cases in California that may lead to unenforceability of a class action waiver).

     In Franco, the Court concludes, “that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff’s claims must be adjudicated in court, where the plaintiff may file a putative class action.” 

     Because Gentry applies here to invalidate the class action waiver, it is obvious that here, “the parties have not agreed in any fashion to allow class arbitration.”  And because Stolt-Nielsen held that class arbitration is not permitted unless the parties expressly or implicitly agree to it, that is why Stolt-Nielsen requires hearing the case in court.

      The key to Franco is an individualized application of the multi-factor Gentry test, leading to the conclusion that under the circumstances of this case, employees could not vindicate their statutory rights.  This approach is to be distinguished from a categorical prohibition of class action waivers.

      Two tips, one for the class action plaintiff, the other for defendants.  The plaintiff needs to be prepared to present evidence through competent declarations that the multi-factor Gentry test for invalidating a class action waiver has been satisfied  – something the plaintiff did present here.  The tip for employers is that to survive the Gentry tests, the arbitration provisions would have to be fairly drafted in such a way that the employee could fully vindicate statutory rights in the arbitral forum – easier said than done.

     For other recent posts that relate to unwaivable statutory rights, see our November 13, 2012 post on Richey v. Autonation, Inc. and our November 20, 2012 post on American Express Company v. Italian Colors Restaurant.

Arbitration/Class Action/FAA/Waiver: United States Supreme Court Grants Certiorari In American Express Company v. Italian Colors Restaurant

 

Can An Arbitration Class Action Waiver Be Enforced If The Plaintiff Would Not Be Able To Effectively Vindicate Federal Statutory Rights Through Arbitration?

     The United States Supreme Court will soon decide whether its holding in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), concerning the enforceability of a class action waiver through an agreement to arbitrate, can be extended, or is limited to the facts in AT&T Mobility.  American Express Company v. Italian Colors Restaurant, Case No. 12-133,  2012 WL 3096737 (U.S. Nov. 9, 2012) (“Amex”).  As reported by Debra Cassens Weiss in the ABA Journal on November 12, 2012, the Supreme Court granted cert to hear this case on November 9, 2012, with Justice Sonia Sotomayor recusing herself.

     Concepcion ruled that the Federal Arbitration Act pre-empted the rule existing in California (Discover Bank v. Superior Court, 134 Cal.App.4th 886 (2005))allowing consumers to avoid the contractual waiver of class-action rights by means of an agreement to arbitrate.  Concepcion involved contractual issues and consumers unhappy with their cell phone provider.

     Amex involves merchants unhappy with terms of allegedly burdensome credit cards issued by Amex that don’t require full payment, and that the merchants feel have been foisted upon them, in violation of the Sherman Anti-Trust Act.  The issue in Amex involves whether the class-action waiver found in the arbitration provision can be enforced when federal statutory rights are at stake and it would be prohibitively expensive to bear the costs of arbitrating anti-trust disputes in order to vindicate federal statutory rights.

     We found it interesting to see just how Amex and Italian Colors Restaurant had framed the issue for the Supreme Court.  As our law professors sometimes reminded us, “to ask the question is to answer it.”  Without comment, we quote the questions presented to the Supreme Court below.

     As framed by Amex: 

“Whether the Federal Arbitration Act permits courts,
invoking the ‘federal substantive law of arbitrability,’
to invalidate arbitration agreements on the ground
that they do not permit class arbitration of a federal law
claim.”

     As framed by respondent Italian Colors Restaurant:

“This Court has repeatedly recognized that federal
statutory claims may be appropriately resolved through
arbitration “so long as the prospective litigant effectively
may vindicate [its] statutory cause of action in the arbitral
forum.” Green Tree Fin. Corp.-Ala. v. Randolph, 531
U.S. 79, 90 (2000). The question presented—on which
there is no disagreement in the circuits—is whether an
arbitration clause should be enforced when there is no
dispute that a litigant has shown that it would be unable
effectively to vindicate its federal statutory rights in the
arbitral forum.”

     For a concise statement of what is at stake, we recommend the blog post of David Horton, Acting Professor of Law at U.C. Davis. 

     We note that Deepak Gupta, who represented Concepcion, now represents Italian Colors Restaurant.

Arbitration/Class/Waiver/Consumers/Enforceability: Second District Division 6 Reverses Denial of Automobile Dealership’s Motion to Compel Arbitration

 

Ducks Addressing Viability of Gentry v. Superior Court By Distinguishing It As Case Dealing With Employment Issues, Not Consumer Issues

     Plaintiff purchased a BMW, and filed a complaint alleging a violation of the Consumers Legal Remedies Act (CLRA) and other consumer protection statutes, because some BMWs do not come with a spare tire, but are equipped instead with tires that allow one to drive a short time after a tire is punctured.  The trial court denied the dealership’s motion to compel arbitration, on the ground that the arbitration agreement included an unenforceable class action waiver.  The dealership appealed.  Sherf v. Rusnak/Westlake, Case No. B237275 (2nd Dist. Div. 6 Oct. 16, 2012) (Perren, J.) (unpublished).

     The Court of Appeal reversed the trial court’s order denying arbitration.   AT&T Mobility LLC v. Concepcion, ___ U.S. ___ , 131 S.Ct. 1740 (2011) preempts state law prohibiting a consumer from waiving class action rights.  However, the Court of Appeal remanded to the trial court to determine whether the arbitration agreement was unconscionable under California law.

     Along the way, the Court of Appeal pointed out that the California Supreme Court “has relied on statutory rights to invalidate a class action waiver in the context of employee rights.” Gentry v. Superior Court, 42 Cal.4th 443 (2007).  Rather than address the continuing viability of Gentry, the Court of Appeal simply ducked that issue by pointing out that Gentry dealt with employment issues, not consumer issues.  Besides, the California Supreme Court has granted review for Iskanian v. CLS Transp. Los Angeles, 208 Cal.App.4th 949 (2012), a case that concluded that Concepcion invalidated Gentry.  So the issue of using unwaivable statutory rights to nix enforcement of arbitration agreements should come up again soon. 

Spare wheels and tires.  Between 1940 and 1946.  Alfred T. Palmer, photographer.  Library of Congress.

Arbitration/Res Judicata/Waiver/Consumers/Class Action: 2006 Denial Of Mediation Is Reversed In 2011 And Reversal Is Affirmed In 2012–Concepcion Made The Difference

Court of Appeal Says It Would Have Been Futile To Seek Reversal Earlier

     In Phillips v. Sprint, Case No. A134371 (First Dist. Div. 3 Sept. 26, 2012) (Pollak, J., author) (published), the Court of Appeal considered a situation in which the trial court denied a request to arbitrate in 2006 in a consumer class action, but granted the request in 2011, following the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ ,131 S.Ct. 1740 (2011)(Concepcion).  In 2011, Concepcion abrogated the California rule, and upheld the validity of class action waivers in consumer contracts requiring arbitration.

     Plaintiffs in Phillips v. Sprint argued the failure to appeal the earlier denial was “res judicata.”  But a motion does not result in a judgment, and therefore the earlier decision was not res judicata. 

     Plaintiffs also argued that the failure to appeal the earlier denial constituted a waiver of arbitration.  “However, as Sprint argues, pursuing an appeal would have been futile given the state of law at the time. ‘Waiver should not be found on the basis of a party’s failure to undertake a futile act.’ (In re Apple & AT&TM Antitrust Litigation (N.D. Cal. 2011) 826 F.Supp.2d 1168, 1174.)”

     Phillips v. Sprint is in line with Reyes v. Liberman Broadcasting Inc., Case No. B235211 (2nd Dist. Div. 1 Aug. 31, 2012), a case we posted about on September 2, 2012.  The court in Reyes also held that an employer that quickly asserted its right to arbitrate after Concepcion was decided did not waive its right to arbitrate.

Arbitration/Waiver: Employer That Quickly Asserted Right To Arbitrate After Concepcion Was Decided Did Not Waive Right To Arbitrate

Timing Is Everything

     Plaintiff Reyes, a security officer, filed a class complaint alleging wage and hour violations against Liberman Broadcasting, Inc. (LBI).  The trial judge denied a motion by LBI to compel arbitration, on the grounds that the employer failed to properly and timely assert its right to arbitrate.  LBI appealed the trial court’s order denying its motion to compel arbitration. Reyes v. Liberman Broadcasting, Inc., Case No. B235211 (2nd Dist. Div. 1 August 31, 2012) (Johnson, J., author) (published).

       Reyes filed his complaint on May 27, 2010.  LBI answered on August 5, 2010, asserting 22 affirmative defenses, but leaving out the existence of the arbitration agreement as an affirmative defense.  Reyes propounded discovery, LBI took a session of Reyes’ deposition, the parties engaged in lengthy meet and confer efforts, and the parties scheduled a class-wide mediation for July 1, 2011.  LBI did not file its motion to compel arbitration until July 5, 2011, more than a year after Reyes filed his complaint.  Aren’t the delay, the discovery, and the scheduling of class-wide mediation inconsistent with an intention to mediate? 

      Not so much here, said the Court of Appeal.  Timing was critical.  At the end of April 2011, the Supreme Court overruled California’s Discover Bank case in AT&T Mobility v. Concepcion, 563 U.S. __ , 131 S.Ct. 1740 (2011).  The court held in Concepcion that “a court may not ‘rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable.’” Id. at 1747.  “Before Concepcion,” explained the Court of Appeal in Reyes, “LBI reasonably concluded that it could not enforce the Arbitration Agreement.”  But after Concepcion was decided in April 2011, LBI promptly informed Reyes that LBI would move to compel, and filed its motion promptly in July 2011.

     What about the discovery?  “Very limited,” said the Court of Appeal.  Discovery had been propounded, but no discovery had actually been exchanged, as the parties bogged down in “extensive meet and confer efforts.”  True, one session of a deposition had been taken of the named plaintiff – but depositions can also be taken in discovery under the rules of the American Arbitration Association.  So no prejudice here.

     The Court of Appeal distinguished Hoover v. American Income Life Ins. Co., 206 Cal. App.4th 1193 (2012), a case we posted about on June 14, 2012.  In Hoover, the defendant “actively litigated.”  How?  “[B]y twice trying to remove the case to federal court, availing itself of ‘discovery mechanisms like depositions not available in arbitration,’ and soliciting putative class members ‘in an effort to reduce the size of the class.’”

     Showing just how fact-oriented waiver inquiries become, the Court of Appeal found “more problematic” the fact that LBI agreed to a private mediation on a class-wide basis.  Such a mediation could only have been fruitful if a settlement of class-claims had been blessed by a court.  However, rather than emphasizing that defendant’s actions were inconsistent with the right to arbitrate, the Court of Appeal instead decided to emphasize the lack of resulting prejudice:  “The agreement to mediate did not guarantee the parties would reach a class-wide agreement.  Therefore, we do not find prejudice from LBI’s agreement to nonbinding class-wide private mediation.”

      The trial court’s order denying the motion to compel arbitration was reversed.

     Comment:   St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003) sets forth the multi-factor test to apply for determining whether a waiver has occurred.  We note that a certain amount of “play” exists in the multi-factor test – depending, for example, on whether the court chooses to emphasize actions “inconsistent with the right to arbitrate” or prejudice.

Arbitration/Class Action/Waiver/Employment: 4th District Division 1 Endorses De-Gentrification But Concludes That Gentry v. Superior Court Is Stare Decisis In California – For Now

At Issue for Employers and Employees:  Classwide Arbitration or Individual Arbitration?

     In an April 25, 2012 post, we said the rule in Gentry v. Superior Court, 42 Cal.4th 443 (2007), allowing for invalidation of a class arbitration waiver where nonwaivable statutory rights are at issue, manages to maintain a “toehold”.  We suggested Gentry, like Wile E. Coyote, was still “up in the air.”   Our next case, Truly Nolen of America v. Superior Court of San Diego County (Alvaro Miranada et al., real parties in interest), Case No. D060519 (Haller, J., author) (for publication) suggests that Gentry is gathering rapid downward momentum.

     Truly Nolen is a wage and hour case, brought by employees who filed a class again against Truly Nolen, a nationwide pest-control company. 

Pest control.  1870-90.  Library of Congress.

Truly Nolen moved to compel arbitration under signed arbitration agreements.  The arbitration agreements were silent about the availability of classwide arbitration.  The trial court granted the motion to compel arbitration. but rejected the employer’s request for individual arbitration, believing Gentry was binding precedent requiring arbitration.  The employer filed a writ of mandate petition challenging the court refusal to order individual arbitration.

     The Court of Appeal left no doubt as to the direction in which it thought the law is evolving:  “we agree with Truly Nolen that Concepcion [v. AT&T, __ U.S. __ [131 S.Ct. 1740] (2011)] implicitly disapproved the reasoning of the Gentry court . . . “  While questioning the viability of Gentry – a California Supreme Court case – the Court of Appeal recognized that the case is stare decisis because it arguably rests on a public policy argument about unwaivable statutory rights that the California Supreme Court has not revisited.

     Gentry may be on life-support, but the 4th District Division 1 hasn’t yet pulled the plug.

      However, the Court of Appeal also concluded the trial court’s application of the Gentry elements requiring arbitration of a class action was unsupported on the factual record.  Therefore, the Court of Appeal vacated the portion of the order denying Truly Nolen’s motion to order individual arbitration.  The Court also remanded to allow the parties to present additional evidence as to whether the parties had “impliedly agreed” to permit class arbitration. 

     Comment:  Under Stolt-Nielsen v. AnimalFeeds Internat. Corp., __U.S. __ ,130 S.Ct. 1758 (2010), not expressly addressing class action arbitrability leads to the same outcome as a waiver of class action arbitrability.  However, under contract law principles, there is still room for parties to “impliedly agree” to class action arbitrability without expressly agreeing to arbitrate class actions.

      Truly Nolen contains an excellent summary of the key federal and California cases in this “rapidly evolving” area of law concerning “the right to classwide arbitration in wage and hour litigation under the FAA and under California law.” 

     

Arbitration/Preemption/Standard of Review: Federal Arbitration Act Preempts Consumer Legal Remedies Act’s Prohibition Against Class-Action Waivers

 

Fourth District, Division 3 Reverses Denial of Petition to Compel Arbitration and Remands to Consider Unconscionability Challenge

     Plaintiff Caron, who experienced difficulties with her certified preowned Mercedes Benz, sued Mercedes Financial and Mission Imports for relief under the Consumer Legal Remedies Act (CRLA), the Automobile Sales Finance Act, and unfair competition law.  Defendants petitioned to arbitrate under an arbitration provision that included a class-action waiver.  The trial court believed that it was bound by Fisher v. DCH Temecula Imports LLC, 187 Cal.App.4th 601 (2010), and ruled that the arbitration provision was unenforceable because it waived the right to bring a class action under the CRLA, and that the Federal Arbitration Act (FAA) did not preempt the CLRA’s prohibition against class-action waivers.  Caron v. Mercedes-Benz Financial Services USA LLC, Case No. G044550 (4th Dist., Div. 3 July 30, 2012) (Aronson, J., author). 

     Whether the FAA preempts the CLRA’s anti-waiver rule is a legal question.  Therefore, the Court of Appeal reviewed the trial court’s ruling de novo.

     Based on AT&T Mobility LLC v. Concepcion, 563 U.S. __, 131 S.Ct. 1740 (2011),the Court of Appeal agreed that the FAA preempts the CLRA’s anti-waiver provision, and declined to follow Fisher.  Therefore, the Court of Appeal reversed the trial court’s ruling that denied the petition to arbitrate, but remanded for the trial court to resolve factual issues raised by Caron’s unconscionability challenge.

     The Court of Appeal acknowledged that the California Supreme Court created the “Discover Bank rule,” used to find certain arbitration provisions in consumer contracts unconscionable because they included a waiver of the consumer’s right to bring a class action.   The reason for the Discover Bank rule was that “consumer contracts of adhesion allowed companies to effectively exonerate themselves from liability for cheating large numbers of consumers out of money individually too small for a consumer to bring an individual action.”  But Concepcion took a different paths.

     Properly drafted class-action waivers may be enforceable, requiring consumers to arbitrate substantive claims brought under the CRLA. 

     Caron highlights two themes in recent cases:  (1) the FAA preempts state law (including statutory rules) that erect obstacles to the FAA’s objective of enforcing arbitration agreements according to their terms, and result in special treatment of contracts with arbitration provisions; (2) arbitration provisions must still satisfy common law rules that govern contract formation and enforceability.  As to the second point, we posted on March 29, 2012, about a case in which an automobile dealership’s effort to enforce an arbitration provision was defeated on state-law waiver grounds.  Lewis v. Fletcher Jones Motor Cars, Inc., No. G045603 (4^th Dist. Div. 3 March 26, 2012) (Aronson, J.) (not for publication).