Second District Upholds Order Finding Arbitration Provision Unconscionable, Post-Concepcion: Sanchez v. Valencia Holding Co.

On October 24, 2011, the Second District (Division 1) upheld a trial court order denying a motion to compel arbitration of a class action case, post Concepcion, in Sanchez v. Valencia Holding Co., __ Cal.App.4th __ (2011). Although the trial court had denied the defendant’s motion on the grounds that the class action waiver was unenforceable because it violated statutory rights under CLRA, the Court of Appeal did not affirm the trial court’s order on these grounds, finding instead that the arbitration agreement was unconscionable under the Armendariz balancing test. As held by the Court, this test continues to survive notwithstanding Concepcion:

Before applying Armendariz to the present case, we note that Concepcion, supra, 131 S.Ct. 1740, does not preclude the application of the Armendariz principles to determine whether an arbitration provision is unconscionable. Concepcion disapproved the "Discover Bank rule," stating: "In Discover Bank, the California Supreme Court applied [the doctrine of unconscionability] to class-action waivers in arbitration agreements and held as follows: [¶] '[W]hen the [class action] waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then . . . the waiver becomes in practice the exemption of the party "from responsibility for [its] own fraud, or willful injury to the person or property of another." Under these circumstances, such waivers are unconscionable under California law and should not be enforced.'" (Concepcion, at p. 1746, italics added.) With the exception of the Discover Bank rule, the Court acknowledged that the doctrine of unconscionability is still a basis for invalidating arbitration provisions. (Concepcion, at pp. 1746, 1747; see Kanbar v. O'Melveny & Myers (N.D.Cal. 2011) 2011 U.S. Dist. Lexis 79447, pp. *15-*16, *23-*24, 2011 WL 2940690, pp. *6, *9.) Thus, Concepcion is inapplicable where, as here, we are not concerned with a class action waiver or a judicially imposed procedure that conflicts with the arbitration provision and the purposes of the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16). (See Concepcion, at pp. 1748-1753.)

Slip Opinion, at 11-12.

The Court's decision joins a growing list of potential exceptions to the U.S. Supreme Court’s ruling in Concepcion. (See previous posts here and here)

Second District Overturns Cert Denial in Bait-and-Switch/Fraud Action Brought on Behalf of Residents of a Senior Citizen Mobilehome Park: Marler v. E.M. Johansing LLC

On October 19, 2011, the Second District Court of Appeal (Division 6) reversed the denial of certification of contract and fraud claims arising out of an alleged scheme designed to secure consent from residents of a rent controlled senior citizen mobilehome park to convert the park to a condominium development. See Marler v. E.M. Johansing LLC, __ Cal.App.4th __ (2011). As stated in the Opinion, plaintiffs allege “that Park owners induced them to convert the Park to a condominium development through false promises about the purchase price they would pay for their lots; after Park residents approved the conversion, Park owners raised the lots prices so high that the majority of Park residents could not afford them.” Slip Opinion, at 1-2. By way of example, the named plaintiffs “lot price increased from $126,500 to $215,000, a price they could not afford. See id., at 4. The trial court denied certification on the grounds that the class was not ascertainable and that there was no community of interest, which the Court of Appeal deemed an abuse of discretion for multiple reasons.

The Court’s Opinion is one that plaintiff attorneys will want to note, as it contains excellent discussion of applicable rules relating to acertainability, including:

1. Identification of dual tests concerning the evaluation of the class definition [Slip Opinion, at 7-8],
2. Standards for addressing overly-broad definitions [Id., at 9],
3. The permissibility of defining the class by facts relating to “ultimate issues” in the action [Id., at 9-10], and
4. The obligation of the trial court to permit the class to be redefined if doing so would facilitate certification. Id., at 10.

Similarly, the Opinion also contains great discussion on the use of “inferred reliance” in the context of fraud, which in this case was deemed appropriate based on the use of a standardized “pitch” letter sent to park residents, as well as a survey utilized to gauge support of the conversion to condominium tracts. Id., at 13-14.

Central District Finds PAGA Waiver Unconscionable, Post-Concepcion: Urbino v. Orkin Services of California

On October 5, 2011, Central District Court Judge, Cormac J. Carney, denied a motion to compel arbitration of a PAGA claim brought by Orkin Services of California, Inc. and Rollins, Inc. (“Defendants”) on the grounds that the arbitration agreement contained an unconscionable PAGA arbitration waiver, rendering the agreement unenforceable under California law. See Urbino v. Orkin Servs. of Cal., 2011 U.S. Dist. LEXIS 114746 (C.D. Cal. Oct. 5, 2011).  As reasoned by the Court, the U.S. Supreme Court's analysis in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) was inapplicable, as PAGA embodies “representative” and “public right” aspects which are fundamental and inseparable features of a PAGA claim, and as such, cannot be set aside by private agreement:

[A]s Plaintiff correctly notes, AT&T concerned the enforceability of a consumer class action arbitration waiver, rather than a representative PAGA claim waiver. (Pls.' Opp. at 21 (citing Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 500 (2011); Plows v. Rockwell Collin, Inc., No. SACV 10-01936, 2011 U.S. Dist. LEXIS 88781, at *14–*15 (C.D. Cal. Aug. 9, 2011)).) In Brown, the California appellate court refused to extend AT&T to a PAGA action in light of the fundamental nature and purpose of a PAGA claim. Brown, 197 Cal. App. 4th at 500-03; see also Plows, 2011 U.S. Dist. LEXIS 88781, at *14–*15. Specifically, the Brown court explained that the purpose of PAGA "contrasts with the private individual right of a consumer to pursue class action remedies in court or arbitration, which right, according to AT&T may be waived by agreement so as not to frustrate the FAA – a law governing private arbitration. AT&T does not provide that a public right, such as that created under the PAGA, can be waived if such a waiver is contrary to state law." Brown, 197 Cal. App. 4th at 500. Furthermore, as noted by the Brown court, the Quevedo court failed to take into account that there are no separate individual claims in a PAGA action; rather, the individual must bring a PAGA claim as a representative action on behalf of himself and other aggrieved employees. See id. at 503 n.8.n13 The Court finds the reasoning offered by the Brown court persuasive. See also Plows, 2011 U.S. LEXIS 88781, at *14–*15 (agreeing with the Brown court's reasoning of why class action waivers in arbitration agreements may not be used to divest plaintiffs of their right to bring representative actions under PAGA and denying defendant's motion to compel arbitration of plaintiffs' PAGA claims). Because the PAGA arbitration waiver in the Agreement is unconscionable, and the waiver taints the entirety of the Agreement with illegality, the Court deems the Agreement unenforceable.

See Urbino, 2011 U.S. Dist. LEXIS 114746, at 39-40.

The Court's decision joins a growing list of opinions finding Concepcion inapplicable in the wage and hour context.  (See previous post here)

California Supreme Court Sets Oral Argument in Brinker v. Superior Court

On October 4, 2011, the California Supreme Court issued Notice that oral argument in Brinker Restaurant v. Superior Court will take place on Tuesday, November 8, 2011 at 9:00 a.m. in San Francisco.  There is little need for me to state the issues in play.  For all wage and hour practitioners, this decision has been a long time coming.