Arbitration enforcement update: 2014 through early 2015

Navigating the ever-changing landscape – and land mines – of employment and consumer arbitration enforcement actions

Scott Tillett
2015 June

This article will help you navigate the evolving landscape of California arbitration enforcement law. After touching upon the seminal cases, it will discuss the California Supreme Court’s treatment of FAA preemption issues in the context of state laws forbidding class-action waivers, its rejection of waivers invalidating PAGA representative actions, and certain California federal district courts’ refusal to adhere to the PAGA waiver exception.

We will then refocus on the frontlines of arbitration enforcement actions, including recent victories for employees, strategies to help your client preserve his day in court, and lessons learned from recent cases that may drastically impact your clients’ abilities to avoid harsh, one-sided arbitration agreements and class-action waivers.

This analysis will also look at the Consumer Financial Protection Bureau’s recent report to Congress on arbitration agreements that banks and others impose on consumers of financial products and services, and it will consider how future financial industry regulations may be adopted in the employment setting.

Finally, we will look at cases pending on the California Supreme Court’s docket that will undoubtedly alter the terrain for arbitration agreement construction.

Seminal arbitration cases

Employers and other proponents of arbitration enforcement have been gaining steam since the United States Supreme Court issued its decision in AT&T Mobility v. Concepcion (hereafter Concepcion) (2011) 131 S.Ct. 1740, holding that the Federal Arbitration Act (“FAA”) preempts state laws invalidating class-action waivers in arbitration agreements. Prior to Concepcion, the California Supreme Court held unconscionable, and therefore unenforceable, class-action waivers within adhesive contracts where the party with superior bargaining power has deliberately cheated less influence-wielding contracting parties (i.e., many individuals) out of relatively small amounts of money. (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 163.)

Our state’s high Court later confirmed in Gentry v. Superior Court (hereafter Gentry) (2007) 42 Cal.4th 443 that Discover Bank did not operate as a blanket ban on class-action waivers. Rather, the enforceability of a class-waiver provision turns on whether:

a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and [whether] the disallowance of the class action will likely lead to a less comprehensive enforcement of [labor or employment] laws for the employees alleged to be affected by the eployer’s violations.

(Gentry, supra, at p. 463.)

The U.S. Supreme Court presumably overruled this state law principle with Concepcion, holding that class waivers are valid, even if individual proceedings are ineffective for prosecuting some claims, because class proceedings interfere with fundamental attributes of arbitration: namely, efficient and economical resolution of private disputes. (Concepcion, supra, 131 S.Ct. at p. 1743.)

For a while, it appeared that Concepcion might not have signaled the death knell for plaintiffs fighting the enforceability of adhesive take-it-or-leave-it contracts containing one-sided arbitration provisions and class-action waivers. Employees, consumers and other plaintiffs argued that Gentry survived Concepcion because, unlike Discover Bank, Gentry disclaimed any categorical rule banning all such waivers. (Gentry, supra, 42 Cal.4th at p. 453.) Employees were still able to challenge arbitration agreement enforceability under the FAA’s “savings clause,” requiring arbitration agreements to be enforced “save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C.A., § 2) and, accordingly, by demonstrating an arbitration agreement is both substantively unconscionable (e.g., unfair terms) and procedurally unconscionable (e.g., hidden terms).

However, any doubt as to Gentry’s survival was dashed by the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC (hereafter Iskanian) (2014) 59 Cal.4th 348.

California upholds class-action waivers in employment arbitration under FAA

The California Supreme Court’s June 2014 decision in Iskanian arguably gave Concepcion teeth in the state employment context. Iskanian confirms that Concepcion overruled Gentry; the FAA preempts state laws interfering with the fundamental objectives of arbitration (i.e., ensuring an efficient forum for economical and speedy resolution of private disputes). (Iskanian, supra, 59 Cal.4th at pp. 384-385.) The California Supreme Court was constrained by the pro-employer precedent set by the United States Supreme Court in Concepcion, holding that a class action is not a substantive right to which employees are entitled, and rejecting the National Labor Relations Board’s conclusion in D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184 [2012 WL 36274], that class-action waivers violate employees’ rights to engage in concerted activities under section 7 of the National Labor Relations Act (29 U.S.C.A., §§ 157-158.). (Id. at pp. 372-373.)

However, despite being bound by the straightjacket Concepcion created, the Iskanian Court was able to carve out representative actions under California’s Private Attorneys General Act of 2004 (“PAGA”), as an exception to the general rule upholding arbitration agreement class-action waivers.

What is a PAGA claim and why is it special?

An employee can bring a civil PAGA action on behalf of the state California Labor and Workforce Development Agency (“LWDA”) to recover civil penalties in a class-representative capacity for their employer’s Labor Code violations. (Lab. Code, § 2699 et seq.) The employee must first inform the LWDA of the alleged violation; the LWDA then has 30 days to decide whether to pursue the employee’s allegations. (Lab. Code, § 2699.3, subd. (a)(2)(A).) Upon receiving notice of the LWDA’s intent not to pursue their allegations – or if no notice is received within 33 calendar days – the aggrieved employee may commence a civil action in a qui tam representative capacity on the state’s behalf. (Ibid.)

Iskanian held that PAGA claims are excepted from the FAA’s enforcement of class waivers because under PAGA, the real party in interest is the state, not the employee. Rather than private civil disputes, employees filing PAGA claims seek to enforce state labor laws as representative private Attorney Generals. The plaintiff pursues the claim on the state’s behalf “as the proxy or agent of the state’s labor law enforcement agencies....” (Iskanian, supra, 59 Cal.4th at p. 380.) An employee cannot waive through an arbitration agreement the state’s right to enforce labor laws under PAGA.

The California Supreme Court’s recognition of representative PAGA actions as sufficiently distinct from class actions to survive pre-dispute class waivers in employment contracts is significant. However, there are limitations to PAGA actions. For example, PAGA claims are subject to a one-year statute of limitations, as opposed to the three-year period for filing private actions for Labor Code violations, and the four-year period for filing actions under California’s Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.). (Code Civ. Proc., § 340, subd. (a).) Furthermore, 75 percent of any penalties recovered from representative PAGA actions are payable to the LWDA, with only 25 percent distributed to aggrieved employees. (Cal. Lab. Code, § 2699, subd. (i).)

Federal district courts enforce PAGA claim waivers despite Iskanian’s holding

Many federal district courts have held they are not bound by the California Supreme Court’s interpretation of FAA preemption, thus rejecting Iskanian’s PAGA claim exception, and instead invoking the following language from Concepcion: “when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: the conflicting rule is displaced by the FAA.” (See, e.g., Mill v. Kmart Corp. (N.D. Cal. Nov. 26, 2014) No. 14-CV-02749-KAW, 2014 WL 6706017 at p. *10; Lucero v. Sears Holdings Mgmt. Corp. (S.D. Cal. Dec. 2, 2014) No. 14-CV-1620 AJB WVG, 2014 WL 6984220 at p. *5.)

In each case listed, a California plaintiff filed both class-action and representative PAGA claims against their employer, post-Iskanian, seeking to invalidate arbitration agreement waivers of both class and representative claims. In each, the court enforced the arbitration agreement waivers, either forcing plaintiffs to individually arbitrate their PAGA claims or, in the case of Ortiz, striking the PAGA claims completely:

• Ortiz v. Hobby Lobby Stores, Inc. (E.D. Cal. Oct. 1, 2014) No. 2:13-CV-01619, 2014 WL 4961126• Chico v. Hilton Worldwide, Inc. (C.D. Cal. Oct. 7, 2014) No. CV 14-5750-JFW SSX, 2014 WL 5088240 • Langston v. 20/20 Companies, Inc. (hereafter Langston) (C.D. Cal. Oct. 17, 2014) No. EDCV 14-1360 JGB SPX, 2014 WL 5335734• Mill v. Kmart Corp. (N.D. Cal. Nov. 26, 2014) No. 14-CV-02749-KAW, 2014 WL 6706017• Lucero v. Sears Holdings Mgmt. Corp. (S.D. Cal. Dec. 2, 2014) No. 14-CV-1620 AJB WVG, 2014 WL 6984220

The district courts stress the importance of enforcing contractual agreements, including pre-dispute PAGA waivers. The Central District, in Langston, went further, describing what it considered a flaw in Iskanian’s ban on PAGA claim waivers:

The California Supreme Court’s rule against representative PAGA claim waivers treats arbitration agreements disfavorably. While concluding that an employee’s agreement not to bring a representative PAGA action is contrary to public policy if it takes place before any dispute arises, the court nevertheless explained that, after a labor dispute arises, an employee is free to choose not to bring a representative PAGA claim. (See Iskanian, 327 P.3d at 383.) Moreover, after a dispute arises, an employee may agree to “resolve a representative PAGA claim through arbitration.” (Id. at 391. Thus, although the court asserts that the basis for holding representative PAGA claim waivers unconscionable is that an employee cannot waive a right that properly belongs to the government, the court nevertheless acknowledges that an employee may actually sometimes waive the government’s right to bring a PAGA claim. (Ibid.) That inconsistency illuminates the fact that, it is not an individual’s ability to waive the government’s right that drives the court’s rule, but rather the court’s general disfavor for pre-existing agreements to arbitrate such claims individually.

(Langston, supra, 2014 WL 5335734 at p. *7.)

The district court posits what, superficially, may appear to be a fair and logical question: If PAGA claims are unwaivable because they belong to the state, then why should an employee be able to waive a PAGA claim, irrespective of whether the waiver occurs before or after a dispute arises? The answer is simple. Nowhere in Iskanian does the California Supreme Court purport to allow an employee to waive the government’s right to bring a PAGA claim. Iskanian simply preserves the state’s choice:

(1) to pursue the employee’s allegations of Labor Code violations itself; and

(2) to resolve the representative claim in an arbitral or judicial forum.

That the employee steps into the shoes of the state and litigates a claim that the LWDA decides not to pursue does not change the analysis. Upon entering into an employment contract or signing other documents containing arbitration agreements and/or class action waivers, the employee is an individual acting on his own behalf. In stark contrast, if and when the LWDA decides not to pursue the Labor Code violation claims, the employee takes on the role of the state, acting as a “Private Attorney General,” and must base his decisions on the interests of the state, to enforce the Labor Code, and the interests of the other employees affected by the representative action, to recover penalties of which they have a 25 percent interest.

The flaw in the district court’s analysis is that it equates an employee’s decision (acting as a Private Attorney General after the LWDA decides not to pursue the claim) to resolve a PAGA claim in an arbitral forum with a waiver of the state’s right to litigate those claims in court. It is not. Just as the LWDA may make the strategic decision to arbitrate the PAGA claims, rather than litigate them, an employee pursuing the same claims as a proxy for the agency retains that choice, but must act on it in light of the best interests of the state and the other employees.

It is the state’s choice to either litigate or arbitrate that is of paramount importance. The employer may not restrain that choice by requiring the employee to waive it as a condition of employment.

Trending issues in arbitration enforcement

Post-Iskanian, unconscionability remains an effective means for an employee to challenge an arbitration agreement’s validity. A plaintiff challenging enforceability of an arbitration agreement (or the enforceability of isolated provisions within) must show that the agreement’s terms are both procedurally and substantively unconscionable; i.e., that it subjects the employee to surprise and unfairness. For an in-depth analysis of the many ways to demonstrate unconscionability, please refer to the Advocate article authored by my sister, Stacy Tillett, appearing in the June 2014 issue. (Tillett, When an agreement to arbitrate is not an agreement to arbitrate (June 2014) Advocate 68-81.)

Rather than summarize recent case law invalidating unconscionable arbitration agreements, the remainder of this article discusses trending issues in arbitration enforcement, and recent case law that is likely to impact future actions.

Demonstrate the employer waived the right to compel arbitration

One way to invalidate an arbitration agreement is to demonstrate that the employer has waived its right to compel arbitration. (Code Civ. Proc., § 1281.2.) Circumstances that may constitute waiver include conduct inconsistent with the intent to arbitrate, unreasonable delay and a showing of bad faith or willful misconduct. (Iskanian, supra, 59 Cal.4th at pp. 374-75, citing Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425-426.)

Merely showing that the employer engaged in litigation, short of a determination on the merits, may be insufficient to constitute waiver. (Iskanian, supra, 59 Cal.4th at p. 375.) Moreover, waiver will not be found where circumstances render an attempt to compel arbitration futile. For example, in Iskanian, the employer timely moved to compel arbitration, but then withdrew its petition after the California Supreme Court issued its opinion in Gentry, restricting enforceability of class waivers. (Ibid.) The employer participated in litigation, including significant discovery and an unsuccessful attempt to oppose class certification. (Ibid.)

But the employer later renewed its petition to compel arbitration after the U.S. Supreme Court issued its decision in Concepcion, which called Gentry into doubt. (Ibid.) The California Supreme Court granted the Iskanian employer’s petition to compel arbitration, reasoning that the employer’s abandonment of its arbitration petition when its success was futile, and renewal when a change in law rendered success possible, did not amount to acts inconsistent with the right to compel arbitration. (Id. at p. 376.)

Despite the general rule that an employer’s engagement in litigation is insufficient to constitute waiver, a court may find an employer has waived its right to compel arbitration where an employee demonstrates prejudice stemming from the employer’s unreasonable or unjustified delay. For instance, in Bower v. Inter-Con Sec. Sys., Inc. (hereafter Bower) (2014) 232 Cal.App.4th 1035, the employer sought to compel arbitration after propounding class-wide discovery, arguing that its conduct was not inconsistent with the right to arbitrate because the arbitration agreement allowed for reasonable discovery under the Federal Rules of Civil Procedure. (Id. at 1047-48.) The appellate court rejected this argument, holding that the employer waived its right to arbitrate because the employer’s discovery had exceeded the scope of arbitration – i.e., the employer could not propound class-wide discovery in court, and then seek to compel individual arbitration. (Ibid.)

The court also rejected the employer’s argument that it had not gained an unfair advantage because the plaintiff had refused to provide substantive responses, stating “[a] party’s actions in litigation that are inconsistent with the right to arbitrate cannot be ignored simply because they did not succeed in achieving that party’s goals.” (Id. at p. 1044.) In assessing whether a party has acted inconsistently with the intent to arbitrate, the focus is on what the party sought, rather than what it obtained. (Ibid.)

Bower teaches us that it may be advantageous to narrowly define the class that an employee represents. The employer might believe it more economical to litigate the relatively small class claims in hopes of settlement. If, after making this decision, the employer seeks class-wide discovery, the employee can then consider whether to amend the complaint to expand the class size. Under these circumstances, a court may find (as did Bower) that the employer’s responses to, or request for, class-wide discovery was a “tactical decision” to litigate, inconsistent with the intent to arbitrate.

Does the employment contract prohibit severability of unenforceable provisions?

Even after a determination that a class-action waiver is enforceable, courts may still refuse to enforce an agreement containing such a waiver if the agreement disallows severance of its unenforceable provisions. This is precisely what the court did in Securitas Sec. Servs. USA, Inc. v. Superior Court, (hereafter Securitas) (2015) 234 Cal.App.4th 1109. The defendant employer petitioned for a writ of mandate, challenging the trial court’s grant of its amended motion to compel arbitration, invalidation of the arbitration agreement’s PAGA waiver provision pursuant to Iskanian, severance of that invalid provision, and order that the parties arbitrate all of the plaintiff’s claims – including plaintiff’s PAGA claim. The employer argued that the parties did not agree to arbitrate class and/or representative claims, and that the court’s decision rewrote the parties’ mutual express waiver of class and representative claims in their dispute resolution agreement.

Essentially, the employer attempted to circumvent Iskanian’s exception for PAGA claim waivers by including a thirty-day opt-out provision, which the employer claimed rendered the employee’s PAGA claim waiver “voluntary.”  The Court of Appeal rejected the employer’s argument that PAGA actions are waivable if the arbitration agreement includes an opt-out provision. The unwaivable nature of representative PAGA actions

does not turn on how the employer and employee entered into the agreement, or the mandatory or voluntary nature of the employee’s initial consent to the agreement. A PAGA claim provides a remedy inuring to the state and the public, and the law… broadly precludes private agreements to waive such public rights.

(Iskanian, supra, 59 Cal.4th at p. 383; Civ. Code, §§ 1668, 3513.)

Notably, like Armendariz v. Foundation Health Psychcare Services, Inc. (hereafter Armendariz) (2000) 24 Cal.4th 83, Iskanian does not require an employee to file a PAGA claim, acknowledging that “employees are free to choose whether or not to bring PAGA actions when they are aware of Labor Code violations. (See Armendariz, supra, at p. 103, fn. 8; Iskanian, supra, 59 Cal.4th at p. 383.)

By not opting-out, the plaintiff accepted the arbitration agreement, and the agreement was valid and binding on the parties (i.e., the opportunity to opt-out meant that the plaintiff was not coerced into waiving her rights). However, whether an agreement is valid, i.e., whether its terms are unconscionable has no bearing on whether a pre-dispute PAGA waiver provision is unenforceable under Iskanian.

While the Court of Appeal agreed with the trial court’s application of Iskanian, it found the trial court had erred in severing the invalid waiver provision, and sending all of the employee’s claims (including PAGA claim) to arbitration. Under the plain language of the parties’ agreement, the PAGA waiver provision was not severable, rendering the entire arbitration agreement unenforceable and thereby precluding the trial court from mandating arbitration.

“Gateway questions”: Who determines arbitrability?

Another issue that is sure to impact arbitration agreement enforceability is whether the court or the arbitrator decides certain “gateway matters,” such as whether a particular claim is arbitrable. Generally, the “gateway question” of who determines the availability of class and/or representative arbitration is “for a court to decide, in the absence of a clear indication that the parties intended otherwise.” (Garden Fresh Rest. Corp. v. Superior Court (2014) 231 Cal.App.4th 678, 686.) This principle is not based on the notion that an arbitrator is unable to set aside self-interest in determining claim arbitrability. California courts have held that arbitrators are capable of setting aside their own financial interests, which favor the arbitral forum and “repeat player” employers who are likely to provide future business. (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1569-70.) Without evidence that a particular arbitrator is incapable of being unbiased, this general view is considered hostile to arbitration and therefore preempted by the FAA. (Ibid.)

However, recent case law suggests that “gateway issues” will become increasingly pivotal in arbitration enforcement actions. In Universal Prot. Serv., L.P. v. Superior Court, (hereinafter Universal Protection Service) (2015) 234 Cal.App.4th 1128 the court held that “the parties’ reference to the American Arbitration Association (“AAA”) rules, which unambiguously state that the arbitrator is to decide whether the parties’ arbitration agreement permits class arbitration, constitutes clear and unmistakable evidence of their intent that the arbitrator decide this [threshold] issue….”

Universal Protection Service is unusual in that the employee, rather than the employer, petitioned to compel arbitration. The complaint included several class wage and hour claims as well as a representative PAGA claim. The employer argued that the election of the AAA rules was not evidence of an agreement to submit class-arbitrability questions to the arbitrator, and that the employee’s PAGA claim was not arbitrable because of Iskanian.

The appellate court held that the threshold issue of who decides whether the plaintiff’s class and representative claims are arbitrable is a case-specific inquiry that is dependent on the parties’ intent. (Universal Protection Service, supra, 2105 WL 851090 at p. *6.) As with the interpretation of any contract provision, intent is assessed in the context of the arbitration agreement as a whole, using plain language meanings, and resolving ambiguities against the drafter; however, arbitration agreements are subject to the “important qualification” that “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” (Id. at p. *5, citing First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944.)

Under the circumstances present in Universal Protection Service, the court held “that the parties’ agreement to arbitrate their disputes under a specifically designated set of rules, which in turn provide that the arbitrator shall decide whether the parties’ arbitration agreement permits class and/or representative arbitration, is clear and unmistakable evidence that the parties intended to delegate to the arbitrator that question. [Citations omitted.]” (Universal Protection Service, supra, 2105 WL 851090 at p. *6.) The decision promotes the FAA’s policy of placing arbitration agreements on equal footing with other contracts, and enforcing them according to their terms and the parties’ intentions. (Ibid.)

As mentioned above, Universal Protection Service is highly unusual because employees rarely seek to enforce arbitration agreements drafted by their employers. It is ironic that, given the current state of the law, an employee might find an arbitrator – who is not necessarily bound by state and federal laws – more attractive than a court for determining arbitrability.

Whether Universal Protection Service is the start of a new trend, or merely an anomaly in this respect, the case will likely play an important role in future arbitrability disputes, insofar as it may impact employers’ willingness to incorporate the AAA rules into arbitration agreements, as well as the degree to which incorporation of documents may affect an agreement’s interpretation. Employees might strategically argue that incorporation of the AAA rules creates an inconsistency with any language in their arbitration agreement indicating the court decides questions of arbitrability. This inconsistency could potentially render the entire agreement unenforceable.

The Consumer Financial Protection Bureau 2015 Arbitration Study

Section 1028(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the Consumer Financial Protection Bureau (“Bureau”) to study the use of arbitration agreements in connection with the sale of consumer financial products and services (e.g., credit cards, checking accounts, private student loans, wireless third-party billing) and to report its findings to Congress. (12 U.S.C.A., § 5518, subd. (a).) The Bureau’s investigation addressed many questions, including consumer awareness and understanding of arbitration clauses; consumer perceptions and expectations about dispute resolution; the prevalence of arbitration clauses in consumer financial product markets; the effect of arbitration clauses on the price of consumer financial products; and analysis of the number of consumer disputes filed and how those claims were resolved by the American Arbitration Association, small claims court and both individual and class action consumer claims filed in state and federal courts from 2010 to 2012.

The Bureau released the results of its study on March 12, 2015. (Arbitration Study, Report to Congress, pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act section 1028, subdivision (a) <http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf> (as of March 16, 2015). While the report is largely a statistical distillation of empirical data presented to Congress, the results of the study may be used to promulgate rules – pursuant to 12 United States Code section 5518, subdivision (b) – limiting and/or eliminating arbitration provisions and class action waivers in consumer financial services contracts.

The results of the study confirm what advocates for consumers and employees have argued all along: that the public does not understand what rights they are foregoing through arbitration agreements, and that such agreements largely benefit large companies and other sophisticated parties that draft the agreements at the expense of consumers and employees, who are then coerced into signing contracts containing arbitration agreements. The Bureau’s findings include the following:

Approximately 50 percent of outstanding credit card loans are subject to arbitration clauses;

Approximately 44 percent of insured deposits include arbitration clauses in their checking account contracts;

Nearly all private student loans and mobile wireless contracts with “large companies” included arbitration agreements;

A “substantial majority” of prepaid card and payday loan transactions are subject to arbitration clauses;

Most consumers are unaware of whether their credit card contracts include arbitration clauses and generally “do not know whether they can sue in court or wrongly believe that they can do so”;

Most consumers wrongly believe that they can participate in class actions despite being subject to arbitration agreements containing class action waivers;

Consumers are largely unaware of arbitration opt-out provisions contained within contracts drafted by card-issuers;

Of 341 cases filed in 2010 and 2011 in which arbitrators resolved consumers’ affirmative claims, consumers obtained relief in 32 disputes;

Of 244 cases in which arbitrators resolved companies’ claims or counterclaims, companies obtained relief in 227 disputes; and

In 2012, consumers filed fewer than 870 small claims court credit card claims, whereas card issuers filed over 41,000 such cases against individuals.

Although this analysis was limited to consumer financial arbitration, an analogy may be drawn from the results to support arguments for disputing arbitration clauses in employment contracts. There is certainly substantial overlap between consumers of financial products and employees. We can only hope that the Bureau’s actions in response to this study will spur similar studies in the employment context.

Cases currently pending Supreme Court review

In addition to the recent, published Court of Appeal decisions in Securitas and Universal Protection Service, there are three cases currently pending on the California Supreme Court’s docket that will impact future arbitration enforcement actions. The issues presented include:

Is an employment arbitration agreement unconscionable for lack of mutuality if it contains a clause providing that either party may seek provisional injunctive relief in the courts, if the employer is far more likely to seek such relief? (Baltazar v. Forever 21, Inc. (Cal.S.Ct., Mar. 20, 2013, No. S208345; formerly published as Baltazar v. Forever 21, Inc. (2012) 212 Cal.App.4th 221.) Does the FAA preempt state unconscionability laws invalidating mandatory arbitration provisions in a consumer contract? (Sanchez v. Valencia Holding Co. LLC (Cal.S.Ct., Mar. 21, 2012, No. S199119; formerly published as Sanchez v. Valencia Holding Co. LLC (2011) 201 Cal.App.4th 74.)Does a court or an arbitrator decide whether an arbitration agreement provides for class arbitration when the agreement itself is silent on the issue? (Sandquist v. Lebo Automotive, Inc. (Cal.S.Ct., Nov. 12, 2014, No. S220812; formerly published as Sandquist v. Lebo Automotive, Inc. (2014) 228 Cal.App.4th 65.)

How the Court will rule on these issues is anything but certain, but my knowledge of substantive arbitration law suggests the following. Based on long-standing legal principles, Sandquist is likely to be resolved in favor of judicial determination of arbitrability where the agreement is silent on the subject. Given its factual setting, Sanchez should be decided on the narrow grounds the case actually presents. If, however, the Court decided the case on much broader grounds and ruled against the plaintiff, the decision could be absolutely devastating to employees forced into adhesive, one-sided arbitration agreements. Baltazar is anyone’s guess. What we know for sure is that however the Court resolves these cases, there will be much to write about next year.

Scott Tillett Scott Tillett

Scott Tillett is a partner and co-founder of the Los Angeles-based appellate firm, Pine Tillett Pine LLP. His practice is devoted exclusively to handling civil appeals, both state and federal. A graduate of USC Law School, he has been recognized by Super Lawyers as a Rising Star in appellate law in both 2016 and 2017.

Arbitration enforcement update: 2014 through early 2015

Copyright © 2020 by the author.
For reprint permission, contact the publisher: Advocate Magazine