Here is the first report on yesterday's argument in n Sonic-Calabasas A, Inc. v. Moreno, No. S174475. My sincere thanks to Eric Kingsley of Kingsley & Kingsley in Encino for attending the argument and taking the time to summarize it for us. Here is Eric's report:
The California Supreme Court heard oral argument in Sonic-Calabasas, Inc. v. Moreno on Wednesday morning, April 3, 2013, regarding the issue of whether or not ATT v. Concepcion would affect the prior order of the Court that held that a Berman hearing process with the Labor Commissioner’s office should take place before submitting a matter to arbitration. By way of background, the first Sonic case was decided 4-3 by this Court and was subsequently remanded by SCOTUS after Concepcion to reconsider in light of that opinion. Two of the majority justices have since departed but none of the dissenters. As such all eyes were on the Chief Justice and Justice Liu who have since joined the Court. True to this Justice Liu took center stage at the proceedings and dominated the discussion between the lawyers.
What was interesting about the arguments is that all sides suffered from some major deficiencies. It was clear that Justice Liu and his colleagues were not buying into to the plaintiff’s arguments that Concepcion had no effect; clearly it did. Justice Liu, who is brilliant by the way, made it clear that in his view unconscionability analysis is not eliminated by Concepcion but it must yield if it gets in the way of the FAA. There was much discussion by Cliff Palefsky and Miles Locker about policy considerations but the justices did not want to deal with those points. If the FAA was offended it was clear they had no choice but to send the matter to arbitration. Justice Baxter began the proceeding by asking Miles Locker if this was a class action, so any tea leaves are unlikely to be had in Iskanian. Whether Gentry remains good law or not may be gleaned from this opinion but it doesn’t appear likely it will be clearly stated. I would wager Gentry won’t appear in the opinion at all. Justice Liu was primarily focused at the beginning of the case about the concept of speediness and indicated that the Berman hearing likely slows down the process significantly so that speediness is not achieved as a goal. While Locker did indicate that a Berman process only takes 4½ months by statute (this may be true in theory but not in practice; interestingly defendants did not refute this), Justice Liu was clearly not convinced. Once Locker left the podium Cliff Palefsky who argued for CELA emphasized the intertwining of rights in the Berman hearing, specifically, one-way fee shifting could be lost, as would a free lawyer and/or bonding of the award. In a weaker moment for him he claimed Concepcion helped the plaintiffs. This clearly fell flat. In his defense the bench was not buying into his American Express v. Italian Colors vindication of statutory rights type argument. About half-way through Palefsky’s argument there was a murmur on the Court by Justice Chin, the Chief Justice and Justice Liu to potentially remand the case to the trial court to examine the unconscionability analysis. Later Justices Corrigan, Kennard and Baxter joined in this chorus.
Justice Liu made clear at this point in the argument that Sonic I will not survive. That point did not change. The question then becomes what to do next. Justice Liu admitted that the Sonic agreement clearly had shortcomings but the general principle of Sonic I could not survive. He even quoted Justice Scalia’s comments in Concepcion regarding the fact that rights won’t be vindicated, “Too bad.” For the liberal wing of the California Supreme Court to be quoting Justice Scalia from the bench was disheartening.
The amicus for defense Felix Shafir was next and his argument devolved into arguing the distinction between unconscionability and constitutional due process limitations. Justice Liu schooled the young man on this point but I believe this entire discussion was not germane to the issue at hand and what to do with this case.
As John Boggs, attorney for Sonic, took the podium the discussion moved. I must say of all the advocates that presented arguments today, clearly Mr. Boggs had the most compelling case. Before he took the podium it appeared to me there was a strong consensus on the bench to remand the matter to the trial court. I believe he may have turned them in a different direction. Sonic, win lose or draw should be happy with his performance at the Court.
Justice Kennard began her questioning by trying to determine what standard should be used for unconscionability, listing three alternatives. Justice Liu then asked a series of questions and he and Boggs were in complete agreement on what Concepcion held. Boggs then brought up three very important points. Remand would not make sense because the issue was not addressed below, or in the Court of Appeal and therefore waived. Furthermore, he continued, this agreement’s identical language has been “vetted” (my word not his) by this Court in Little v. Auto Stiegler. He further argued that plaintiffs conceded the agreement was enforceable and the only issue was the Berman waiver, and in fact none exists.
Boggs moved further in arguing that all rights and protections inside the Berman hearing process would apply in the arbitration such as one-way fee shifting. The court was confused and surprised by this concession and perhaps Boggs played too much of his hand when he did not need to. In his defense though it seemed clear to me he was trying to convince the Court that the employee would be no worse off and would have the same protections in arbitration as if the Berman process had occurred. In many ways if that’s the law that might not be a bad thing for employees. If the Berman/arbitration allowed for one-way fee shifting and government lawyers, there might not be a dissuasion of employees to move forward. I think likely this is not the real motivation behind this case and I think Justice Liu was aware of this fact. Boggs appears to me, though I must say I’m reading into his motivations, to be using a factual situation like ATT that seems fair to the plaintiff and not causing undue burden, to create a rule that in the end will be very harmful to plaintiffs and employees. The Chief Justice and Justices Liu and Baxter cross-examined Boggs on these points as his time expired as to the rights in a Berman hearing that would be protected in arbitration.
In rebuttal, Locker may have saved the day, I don’t think so though if I had to bet on it. He pointed out in no uncertain terms that there was a Berman waiver if not in name but in effect. Further, he indicated that Little did not deal with the Berman issue and while there was an acknowledgment at the trial court level it is the denial of Berman rights that makes the agreement unconscionable.
Bottom line: Two possible outcomes. Either way Sonic I dies. They could punt and remand the unconscionability analysis in light of Concepcion back to the trial court and articulate a standard for them to consider. Justice Baxter was concerned at the outset about how much the plaintiff earned per hour so a modified Gentry test could be established without citing Gentry. This would likely be a split decision 4-3 perhaps. The other option is for them to order the matter to arbitration in a narrow 7-0 ruling though Justice Wederger might dissent. It’s hard to say as she was so quiet. In this view of the case I don’t think defense lawyers get a big ruling but rather the ruling would speak of the protections the arbitration agreement provided that were identical to the protections in the Berman hearing. Since the plaintiff waived his right to contest this in any event they would be forced to send the case to arbitration. Either way I don’t expect a sweeping ruling and I don’t think it will change much in arbitration jurisprudence. We must wait for Iskanian, unless as Cliff Palefsky said at the conclusion of his argument “I beg you, don’t do it, don’t read tea leaves.” I don’t think they will. This plaintiff will likely lose but it won’t be that bad. On the broader point of whether Gentry is a dead letter, I fear many of Justice Liu’s comments and he may be inclined to strike it down. It’s hard to tell but I would not want to bet on it.
Thank you again, Eric. I was promised one other report on the argument, which will go up when received.