Wednesday, September 14, 2011

Concepcion Revisited: Developing Exceptions to FAA Preemption

It has been a while since I have discussed the impact of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (previously discussed here). As generally occurs after a decision of this magnitude has some time to settle, exceptions begin to percolate to the surface. Below are two recent favorable District Court opinions highlighting separate exceptions Concepcion’s preemption analysis:

First, in Plows v. Rockwell Collins, Inc., 2011 U.S. Dist. LEXIS 88781, 12-14 (C.D. Cal. Aug. 9, 2011), Central District Court Judge David O. Carter concluded that in the employment context, the California Supreme Court’s decision in Gentry v. Superior Court, 42 Cal.4th 443 (2007) remained valid law not withstanding Concepcion. Citing to the recent decision in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 494 (2011) – previously discussed here – the Court concluded that Gentry remained valid law because the Gentry rule (i.e. the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, etc) is not predicated upon unconscionability:
[T]he Brown opinion highlights the differences between Discover Bank and Gentry, citing Arguelles-Romero v. Superior Court, 184 Cal. App. 4th 825, 836, 109 Cal. Rptr. 3d 289 (2010) for the proposition that "Discover Bank is a rule about unconscionability, [whereas] the rule set forth in Gentry is concerned with the effect of a class action waiver on unwaivable rights regardless of unconscionability." Id. (emphasis in original). The California Court of Appeals goes on to state that Concepcion "specifically deals with the rule enunciated in Discover Bank," declining to adopt a broad interpretation of the Supreme Court's opinion. 197 Cal. App. 4th 489, Id. at 5. Finally, Judge Kriegler, concurring in the Brown decision, notes that, although Concepcion may have called Gentry's survival into doubt, "Gentry remains the binding law of this state which we must follow," until the California or United States Supreme Court rules otherwise. 197 Cal. App. 4th 489, Id. at 8 (Krieger, J., concurring) (citing Auto Equity Sales v. Superior Court, 57 Cal. 2d 450, 455, 20 Cal. Rptr. 321, 369 P.2d 937 (1962)).
Finding this reasoning persuasive, the Court holds that, for the purposes of the present Motion to Compel Arbitration, Gentry is valid law. Plows thus may avoid arbitration if he can demonstrate that his arbitration agreement is unenforceable under Gentry.  As in Brown, however, the Court finds that there is insufficient evidence to determine whether the Gentry test is satisfied. This lack of evidence makes sense: the fact that Defendant did not move to compel arbitration until the filing of the instant motion means that there previously was no need to conduct discovery on this issue. Now that this need for information has arisen, however, the parties must be afforded an opportunity to gather the appropriate evidence.
See Plows, 2011 U.S. Dist. LEXIS 88781, at 12-14.

Second, in In re Directv Early Cancellation Fee Mktg. & Sales Practices Litig., 2011 U.S. Dist. LEXIS 102027, 37-39 (C.D. Cal. Sept. 6, 2011), Central District Court Judge Andrew J. Guilford declined to compel arbitration of UCL and CLRA injunctive relief claims on the grounds that they were brought by the plaintiffs “as private attorneys general, seeking to vindicate a public right.” This is analogous the the decision in Brown, which concluded that Conepcion did not apply to PAGA claims.  As held by the Court here, the California Supreme Court’s prior finding that UCL and CLRA private attorney general claims were not arbitrable in Broughton v. Cigna Healthplans of California, 21 Cal. 4th 1066 (1999) and Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303 (2003) remained valid law not withstanding Concepcion:
The Court has also reviewed subsequent authority submitted by the parties and the Court is not convinced that Cruz and Broughton are overruled by Concepcion.
Both Cruz and Broughton are more nuanced in their holdings than an "outright" prohibition of certain claims.  In Cruz, the court held that arbitration was improper for injunctive claims brought on behalf of the general public but declined to rule on all injunctive claims, such as "UCL injunctive relief actions brought by injured business competitors." Cruz, 30 Cal. 4th at 315. And in Broughton, the court again shied away from a broad holding about all injunctive relief claims. Broughton, 21 Cal. 4th at 1079 ("We need not decide the broad question framed by the Court of Appeal and by plaintiffs as to whether an arbitrator may ever issue a permanent injunction."). Instead, the holding in Broughton is that, when a plaintiff is functioning as a private attorney general, the injunctive claim is not arbitrable. Id. at 1080. Thus, both Cruz and Broughton acknowledge that certain injunctive claims may be arbitrable and instead provide guidelines for determining when injunctive claims are not subject to arbitration. It is not clear that Concepcion intended to overrule the Cruz and Broughton line of cases.
Further, as set forth thoroughly in Broughton, there are compelling reasons why arbitration is not the proper forum for vindicating a broad public right. Broughton notes that "[o]ur path . . . begins by recalling that the purpose of arbitration is to voluntarily resolve private disputes in an expeditious and efficient manner." Id. at 1080. And the court was "cognizant of the evident institutional shortcomings of private arbitration in the field of such public injunctions." Id. at 1081. Broughton goes on to discuss these shortcomings. For example, a superior court retains jurisdiction over a public injunction, but arbitrators are not bound by earlier decisions of arbitrators in the same case, and this could cause inconsistency. Id. at 1081. And arbitration awards don't automatically have effect on non-parties, so even a public injunction could be enforceable only by the parties to the original case. Id. If another consumer plaintiff sought to enforce an injunction, he or she would need to re-arbitrate the same claim. Further, judges are accountable to the public in ways that arbitrators are not, so Broughton stated that judges are more suitable for overseeing injunctive remedies designed for public protection. Id.
See In re Directv, 2011 U.S. Dist. LEXIS 102027, at 37-39.

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