Arbitration/Class Action Waiver: Party Cannot Be Compelled To Arbitrate Class Arbitration Where Arbitration Provision Neither Authorizes Nor Prohibits Class Action

 

But Rule in Gentry Allowing For Invalidation of Class Arbitration Waiver Where Nonwaivable Statutory Rights Are At Issue Manages to Maintain Toehold

     Once again, the Court of Appeal ventures into the thicket of class action arbitration waivers, threading its way around ATT&T Mobility LLC v. Concepcion, __ U.S. __ , 131 S.Ct. 1740 (2011), Discover Bank v. Superior Court, 36 Cal.4^th 148 (2005) (overruled by Concepcion), and Gentry v. Superior Court, 42 Cal.4^th 443 (2007)(Gentry). Kinecta Alternative Financial Solutions, Inc. v. Superior Court of Los Angeles County, B235491 and B236084 (2nd Dist. Div. 3 April 25, 2012) (certified for partial publication) (authored by Kitching, J.)

     Malone filed a class action for violation of California wage and hour laws against Kinecta. But Malone had signed an agreement containing an arbitration provision providing: "I further agree and acknowledge that [Kinecta] and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context." Based on the arbitration provision that neither authorized nor prohibited class actions, the employer, Kinecta, moved to dismiss class allegations from Malone's complaint. The trial court ordered arbitration, but refused to dismiss the class allegations. Kinecta then petitioned the Court of Appeal to issue a writ of mandate directing the trial court to vacate its order denying Kinecta's motion to dismiss class allegations from the complaint.

     First, the Court reviewed the status of Discover Bank. In that case, the California Supreme Court stated that when consumer contracts of adhesion contain a class action waiver, when the disputes involve small amounts of damages, when the party with unequal bargaining power schemes to cheat large numbers of consumers out of small sums of money, the class action waivers are unconscionable and should not be enforced. However, Discover Bank has been expressly overruled by Concepcion – the Federal Arbitration Act does not allow arbitration agreements to be enforced differently than other agreements.

     Second, the Court reviewed the rule in Gentry. Gentry requires analysis of four factors to determine whether a class action arbitration waiver is unconscionable in circumstances where an employee seeks damages for the employer's alleged violations of wage and hour statutes: (1) the modest size of potential individual recovery; (2) potential retaliation against class members; (3) absent class members may not be informed about their rights; and, (4) existence of other obstacles to vindication of class member's rights through individual arbitration. Based upon an analysis of those factors, a trial court may invalidate the class arbitration waiver in California.

     Third, the Court points out that Discover Bank and Gentry established different tests of whether to enforce a class arbitration waiver. Briefly, Discover Bank looked at a consumer situation, and a very carefully drafted arbitration provision, whereas Gentry concerned a situation in which nonwaivable employee statutory rights were involved – and the tests for invalidating a class action waiver were different in the two cases. Discover Bank has been overruled by Concepcion. However, at least for now, because Gentry, "has not been expressly abrogated or overruled, Gentry appears to remain the binding law in California." The Court added in dictum: "A question exists about whether Gentry survived the overruling of Discover Bank in Concepcion, but it is not one we need to decide."

     Fourth, Malone failed to provide evidence as to any of the four Gentry factors, there was no "factual basis that would require a declaration that the arbitration agreement was unenforceable."

     Fifth, because the arbitration agreement was not unenforceable under Gentry, and because the parties' arbitration agreement did not authorize class actions, the employer could not be compelled to arbitrate. Stolt-Nielsen v. Animalfeeds International Corp., 559 U.S. __, 130 S.Ct. 1758 (2010). (holding that under FAA, party may not be compelled to submit to class arbitration unless there is a contractual basis for concluding that party agreed to do so.).

     The Court granted a writ of mandate directing the Superior Court to vacate its order denying the employer's motion to dismiss class action allegations, and also granted a writ directing the Superior Court to vacate its order granting the employee's discovery motion relating to class action discovery.