California Mediation and Arbitration

Arbitration, FAA Preemption: Ninth Circuit Holds Federal Arbitration Act Does Not Preempt AB 51, Which Forbids Employers From Requiring Arbitration As Condition Of Employment

Judge Sandra S. Ikuta Dissents.

        Section 432.6 of the California Labor Code, which was added by AB 51, forbids employers from requiring an arbitration agreement as a condition of employment, or threatening to retaliate against an employee for refusing to sign an arbitration agreement. A Ninth Circuit panel, by a two person majority, holds that the Federal Arbitration Act does not preempt §432.6, except for civil and criminal penalties that were an impediment to arbitration, and which therefore were preempted. Chamber of Commerce v. Bonta, No. 20-15291 (9th Cir. 9/15/21) (Lucero, Fletcher; Ikuta, dsst.)

        Judge Lucero explains that the sine qua non for arbitration agreements is that they must be voluntary and consensual. Therefore, he sees no conflict between the goal of the FAA and the California legislation, which seeks to  prevent employers from foisting unwanted arbitration agreements on employees. Additionally, he draws a line between a law that  would invalidate an arbitration agreement, which §432.6 does not  do, and a law aimed at conduct before the arbitration agreement is entered into. He uses this two-stage analysis to attempt to distinguish Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S. Ct. 1421 (2017), reversing a Kentucky court that had ruled that arbitration agreements executed by individuals holding powers of attorney for relatives were unenforceable. Section 432.6 does not actually invalidate arbitration agreements, targeting instead pre-agreement conduct. However, because civil and criminal penalties do serve as an obstacle to arbitration, they are preempted by the FAA.

        Judge Ikuta finds the effort to distinguish Kindred Nursing Centers strained, because the SCOTUS case does refer to formation of arbitration agreements. She also  points out that in California, the doctrine of unconscionability has been used to invalidate arbitration agreements, and that this doctrine does not hinge simply on whether the contract was one of  adhesion: instead, it must be both a take-it or leave-it agreement, and it must be substantively unfair before it will be invalidated. One who signs a contract is presumed to have consented voluntarily, even if it is a contract of adhesion, and there is unequal bargaining power. Finally, she points out that the "tortuous" ruling results in a "bizarre" enforcement scheme: "the majority upholds Section 432.6 and its associated sanctions so long as they are not applied to conduct leading to executed arbitration agreements. This holding means that an employer’s attempt to enter into an arbitration agreement with employees is unlawful, but a completed attempt is lawful." 

        COMMENT: When Charles Bernheimer, the "Father of Commercial Arbitration", campaigned for the New York Arbitration Act and the FAA early in the 20th century, his goal was to create a quick and efficient means of resolving disputes between merchants. It is doubtful that the authors of the FAA imagined a landscape in which arbitration would swallow up employment and consumer disputes involving parties with very unequal bargaining power. Ever after, courts have had to apply the legal fiction that  an arbitration agreement must be "voluntary and consensual." However, those words are now  terms of art, for the person who fails to read a contract or to wear their reading glasses,  has nevertheless consented by signing. And the person who must sign a "take-it or leave-it" arbitration agreement to obtain a minimum wage job has consented. Jeremy Bentham, a critic of legal fictions, said that "fictions are to law what fraud is to trade."

        The Ninth Circuit has probably set up a conflict between federal circuits in Chamber of Commerce v. Bonta, and with Judge Ikuta's dissent, there is a reasonable probability that the majority opinion will not be the last word on the subject.

        From time to time I will note that in controversial arbitration cases, differences of opinion parallel political philosophies and parties  of the judges. So I note here that Judges Lucero and Fletcher were Clinton appointees, and Judge Ikuta, a member of the Federalist Society, is a  George W. Bush appointment.

        BEST LINE: "Like a classic clown bop bag, no matter how many times California is smacked down for violating the Federal Arbitration Act (FAA), the state bounces back with even more creative methods to sidestep the FAA." A go-to cliche favored by jurists is a reference to the arcade game "whack-a-mole." So Judge Ikuta gets points for elegant variation. A Hat Tip:

Danny Kollaja, better known as Lanky the Clown, acting up at the Wyoming  State Fair in Douglas. Carol M. Highsmith, photographer. 2015. Library of Congress.

Arbitration, Public Injunctive Relief: Ninth Circuit Holds Non-Waivable Public Injunctive Relief Must Be Forward Looking And Benefit The General Public

Judge Berzon Dissents.

        Plaintiff Brandon Hodges brought a putative class action against Comcast, challenging its privacy and data-collection practices and seeking injunctive relief. The trial court denied Comcast's motion to compel arbitration, on the ground that Hodges sought public injunctive relief that could not be waived with an agreement to arbitrate. The Ninth Circuit panel remanded with instructions to  grant the motion. Judge Berzon dissented. Hodges v. Comcast, No. 19-16483 (9th Cir.  9/10/21) (Collins, VanDyke; Berzon, dsst.).

        The majority and dissenting opinions rely on whether Hodges was seeking "public injunctive relief," because California's "McGill rule" is that a party seeking public injunctive relief cannot waive the right to go to court. California Civil Code §3513 provides: "Any one may waive the advantage of a law intended solely for  his benefit. But a law established for a public reason cannot be contravened by a  private agreement."

        "[P]ublic injunctive relief within the meaning of McGill," writes Judge Collins, "is limited to forward-looking injunctions that  seek to prevent future violations of law for the benefit of the general public as a whole, as opposed to a particular class of persons, and that do so without the need to consider the individual claims of any non-party." The majority's view is  that Hodges' requested relief was for past wrongs, and would have benefited a limited private class; thus, public injunctive relief is not  at issue. And if the injunctive relief requested by Hodges requires an individualized look at claims, then the speed, efficiency, and economy of arbitration would be undermined, and the Federal Arbitration Act would preempt an expansive interpretation of the McGill rule that would undermine the purpose of arbitration.

        Judge Berzon dissents, pointing out that the injunctive relief requested by Hodges includes rewriting Comcast contracts, that such relief is forward looking, and that such relief would benefit a large swath of the  public, given that "Comcast reportedly had 2.2 million subscribers in the state, or 40% of the state cable market."  "At a minimum, in keeping with the liberal construction given to California's consumer protection statutes," writes Judge Berzon, "public injunctive relief must also include injunctions affecting the contract terms a business may offer to potential customers."

        COMMENT: It is sometimes said that  liberal judges want to keep the door to the federal  courthouse wide open (for every wrong there is a remedy), whereas conservative judges want to shut the door to prevent a flood of cases. So is it noteworthy in Hodges v. Comcast that Collins and VanDyke are  Trump appointments, and Berzon is a Clinton appointment?