Viability of Gentry v. Superior Court is Sidestepped By Court of Appeal
Plaintiff/employee Lorena Nelsen filed a putative class action lawsuit against her former employer LPI for multiple Labor Code violations. Because Nelsen signed an arbitration agreement when she was hired, the employer, LPI moved, successfully, to compel arbitration with Nelsen all alone. Nelsen appealed the order compelling arbitration, arguing it was unconscionable, and the order violated state or public policy, because it precluded class arbitration by its terms. Nelsen v. Legacy Partners Residential, Inc., A132927 (1st Dist. Div. 1 July 18, 2012) (Margulies, J., author) (certified for publication).
First, the Court of Appeal had to deal with the issue of appealability, because ordinarily an order compelling arbitration is not appealable. An exception is the “death knell doctrine” when it is unlikely that the case will proceed as an individual action. Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1098 (2002). Here, however, there was no explanation by Nelsen as to whether her complaint could proceed as an individual action. Nevertheless, the Court exercised its discretion to treat her appeal as a petition for a writ of mandate, thereby preserving her claims long enough to dispatch them.
Second, unconscionability had to be considered. While several factors supported a finding that the agreement was procedurally unconscionability, that was not enough to nix the agreement to arbitrate, unless there was also substantive unconscionability. Because nearly the same arbitration clause language had already passed muster in Little v. Auto Stiegler, Inc., 29 Cal.4th 1064 (2003), LPI’s agreement was not substantively unconscionable. The only difference between the agreement in issue in Little and that in Nelsen actually weighed in favor of finding Nelsen’s agreement was not unconscionable. In Little, only awards exceeding $50,000 required the arbitrator’s “written reasoned opinion” -- precisely the awards an employer would be more likely to appeal -- whereas in Nelsen’s case, there was no such distinction to favor the employer. The agreement in Nelsen did not appear to work in a lopsided, unilateral fashion.
Third, all the relevant contractual language contemplated a two-party arbitration, not class arbitration. See Kinecta Alternative Financial Solutions, Inc. v. Superior Court, 205 Cal.App.4th 506 (2012), also concluding there was no contractual basis for finding an arbitration agreement authorized class arbitration.
And this takes us to the issue of enforceability under Gentry v. Superior Court, 42 Cal.4th 443 (2007) – the important issue the Court sidestepped. In Gentry, the California Supreme Court concluded that, in wage and hour cases, a class action waiver would frequently have an exculpatory effect and would undermine enforcement of the statutory right to overtime pay. Gentry treated the statutory Labor Code rights as unwaivable, regardless of unconscionability.
However, “the continuing vitality of Gentry has been called into serious question by a recent decision of the United States Supreme Court holding [AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011)] that a state law rule requiring classwide arbitrations based on public policy grounds rather than the parties’ arbitration agreement itself does violate the FAA.”
The Court of Appeal avoided having to address whether Gentry has been vitiated by Concepcion with an explanation that there was no evidence in the record of the “Gentry factors” – “a predicate showing that (1) potential individual recoveries are small; (2) there is a risk of employer retaliation; (3) absent class members are unaware of their rights; and (4) as a practical matter, only a class action can effectively compel employer overtime law compliance.” So Gentry, like Wile E. Coyote1, is still “up in the air.”
Finally, the Court of Appeal was not persuaded by the argument in D.R. Horton, Inc., 27 NLRB No. 184 (2012) that it was a violation of the National Labor Relations Act to require employees as a condition of employment to waive the filing of a class action claim regarding wages. The Court of Appeal treated Horton as an outlier case, and instead followed the analysis in Iskanian v. CLS Transportation, 206 Cal.App.4th 949 (2012), , 206 Cal.App.4th that the NLRB went beyond its administrative expertise in interpreting a statute. Besides, Horton is not a California state court decision.
For some of our related blawg posts see: June 14, 2012, June 4, 2012, May 3, 2012, March 18, 2012 (Concepcion); April 25, 2012 (Kinecta); June 5, 2012 (Horton); April 25, 2012 (Gentry). June 14, 2012, June 5, 2012 (Iskanian).
1BLAWG BONUS: The animator Chuck Jones based his Wile E. Coyote on Mark Twain’s description of the coyote as "a long, slim, sick and sorry-looking skeleton" that is "a living, breathing allegory of Want. He is always hungry."
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