After the California Supreme Court decided Gentry v. Superior Court (2007) 42 Cal.4th 443, class action waivers in arbitration agreements were on life support, with their supporters holding fast to the hope that some modern miracle would come along to resuscitate them.  Then along came AT&T Mobility LLC v. Concepcion (2011) 113 S.Ct. 1740, and hope was born anew in employers like CLS Transportation Los Angeles, LLC (“CLS”).  CLS had previously withdrawn a motion to compel arbitration and dismiss its employees’ class claims after the Court of Appeal directed the trial court, in light of Gentry, to reconsider its order enforcing CLS’ arbitration agreement and class action waiver.  Taking the chance that Concepcion was the panacea it had hoped for, CLS filed a renewed motion to compel arbitration and dismiss class claims brought by employee Arshavir Iskanian, and the risk paid off.

Early in Iskanian’s employment with CLS, he signed an arbitration agreement which provided that “any and all claims” arising out of his employment were to be submitted to binding arbitration.  The agreement contained a class and representative action waiver which provided that “class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement”.  Iskanian and CLS further agreed that neither would “assert class action or representative action claims against the other in arbitration or otherwise” and that each “shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.”

Notwithstanding his arbitration agreement with CLS, Iskanian filed a class action against CLS alleging various wage and hour violations.  CLS filed a motion to compel arbitration and prevailed; however, on appeal by Iskanian, the Court of Appeal ordered the trial court to reconsider its ruling in light of Gentry which was decided soon after the trial court had ruled in CLS’ favor.  CLS voluntarily withdrew its motion to compel at that time and the parties proceeded with litigation, including through briefing and the court’s ruling on a motion for class certification.  Then, the U.S. Supreme Court decided Concepcion, and CLS, reaching out for the lifeline it had been offered, renewed its motion to compel arbitration and dismiss the class claims.  The trial court granted CLS’ renewed motion, and Iskanian appealed.  Although an order compelling arbitration would not be appealable, the order also dismissed class claims and was therefore appealable as the “death knell” for the class claims.

Latching on to the fact that the Court of Appeal had previously remanded his case with a direction that the trial court reconsider its order granting CLS’ motion to compel arbitration and dismiss class claims in light of Gentry, Iskanian argued that Concepcion was limited in scope and that Gentry remained good law to the extent that it prohibits arbitration agreements from “interfering with a party’s ability to vindicate statutory rights through class action waivers.”  The Court, however, disagreed and found that the Concepcion decision conclusively invalidates the Gentry test for determining whether a class action waiver should be upheld.

The Court identified three bases for it finding that the trial court properly applied the Concepcion holding and properly declined to apply the Gentry test in granting CLS’ motion to compel arbitration and dismiss Iskanian’s class claims:

  • If a plaintiff was successful in meeting the Gentry test, the case would likely be decided in class arbitration.  But “Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them.”
  • A rule like the one in Gentry which requires courts to determine whether to impose class arbitration on parties who contractually rejected it cannot be considered consistent with the objectives of the Federal Arbitration Act, as upheld by Concepcion, of enforcing arbitration agreements according to their terms.
  • It is irrelevant, in the wake of Concepcion, that Iskanian brought a class action to “vindicate a statutory right.”  The Supreme Court was clear in Concepcion that states “cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”

 

The Court also addressed other recent decisions plaintiffs are clinging to in order to bring arbitration agreements with class and representative action waivers to their demise.  The Court first took the wind out of the NLRB’s decision in D.R. Horton (2012) 357 NLRB No.  184, which held that a mandatory, employer-imposed agreement requiring employment related disputes to be resolved through individual arbitration violated the NLRA.  The Court noted that if D.R. Horton only involved application of the NLRA, they likely would have deferred to it, but because the NLRB is not charged with interpreting the FAA, the Court was under no obligation to, and declined to, defer to its analysis.   The Court further rejected the opinion of another California Court of Appeal in Brown v. Ralphs Grocery Co. (2011) 197 Cal.App. 4th 489, which held that the Concepcion ruling does not apply to representative actions under the PAGA, and therefore a waiver of PAGA representative actions is unenforceable under California law.  Following Concepcion, the Court held that the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement, and that the FAA preempts any attempt by a court or state legislature to insulate a particular type of claim from arbitration.  Accordingly, the Court held that giving effect to the terms of the arbitration agreement between Iskanian and CLS, Iskanian may not pursue representative claims against CLS.

The Bottom Line:  As more California courts of appeal stake out divergent positions on the application of Concepcion, the California Supreme Court will ultimately be called in to offer a final opinion.  In the meantime, the ruling in Iskanian gives employers seeking to enforce arbitration agreements with class and representative action waivers another leg to stand on.