The UCL Practitioner

Second and Seventh Circuits hand down decisions addressing Concepcion and Dukes

In In re: American Express Merchants Litigation, ___ F.3d ___ (2d Cir. Feb. 1, 2012), the Second Circuit refused to enforce a no-class-action arbitration clause notwithstanding Concepcion.

In Ross v. RBS Citizens, N.A., ___ F.3d ___ (7th Cir. Jan. 27, 2012), the Seventh Circuit affirmed class certification of claims for unpaid overtime wages under FLSA and Illinois state law.  The opinion closely analyzes Dukes.

Many thanks to the blog readers who brought these decisions to my attention.

California Supreme Court to construe Concepcion: Sonic-Calabasas A, Inc. v. Moreno

In other arbitration-related developments, on October 31, 2011, the U.S. Supreme Court granted cert. in Sonic-Calabasas A, Inc. v. Moreno, no. 10-1450, and issued this order:

The petition for a writ of certiorari is granted.  The judgment is vacated, and the case is remanded to the Supreme Court of California for further consideration in light of AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011).

In Sonic, the California Supreme Court held (in February, pre-Concepcion) that a provision in an employment contract waiving the right to a Berman hearing in favor of arbitration was unconscionable.  Sonic-Calabasas A, Inc. v. Moreno, 51 Cal.4th 659 (2011).  Justice Moreno's majority opinion was joined in by Chief Justice George, Justice Kennard, and Justice Werdegar; Justices Chin, Baxter and Corrigan dissented. 

With two new members on the Court, it's hard to say where this will head.  The case is not a class action.  Here is a link to the docket: Sonic-Calabasas A, Inc. v. Moreno, S174475. 

New footnote addresses Concepcion: Roberts v. El Cajon Motors, Inc.

In Roberts v. El Cahon Motors, Inc., ___ Cal.App.4th ___ (Nov. 8, 2011), the Court of Appeal (Fourth Appellate District, Division One) rejected the argument that it was okay for a defendant to wait and see how the Supreme Court would rule in Concepcion before seeking to compel arbitration:

At oral argument, El Cajon argued it waited to compel arbitration because it was unsure of the state of the law regarding the enforceability of the waiver of classwide claims in the arbitration provision at issue here, as evidenced by the U.S. Supreme Court's recent decision in Concepcion and by other recent cases (see e.g., Smith v. Americredit Fin. Servs., Inc. (S.D.Cal. 2009) 2009 WL 4895280).  We find this excuse unavailing.  El Cajon cannot proverbially "have its cake and eat it too."  That is, if El Cajon wanted to arbitrate the dispute involving Roberts, it should have promptly invoked arbitration regardless of the validity of the waiver provision in the arbitration provision.  After all, Concepcion was not decided until April 2011, more than a year after El Cajon moved to compel arbitration.  In addition, El Cajon's argument assumes that Concepcion would have been decided favorably to El Cajon, which of course was entirely speculative at the time El Cajon moved to compel arbitration.  Finally, Concepcion arguably does not preempt "all California law relating to unconscionability" because "[g]eneral state law doctrine pertaining to unconscionability is preserved unless it involves a defense that applies 'only to arbitration or that derive[s its] meaning from the fact that an agreement to arbitrate is at issue.' "  (Mission Viejo Emergency Medical Associates. v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1158, fn. 4, quoting Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1746].)  Here, whether the arbitration provision was valid and enforceable notwithstanding the waiver of classwide claims in that provision was an issue between the parties, as evidenced by the trial court's alternative finding the arbitration provision was substantively and procedurally unconscionable.  (See fn. 7, ante.)

Slip op. at 19 n.10.  The quotation from Mission Viejo is interesting because that case was not a class action (which Roberts is). 

Matt Bailey has a lengthier post on Roberts over at his blog, Bailey Class Action Daily.

Arbitration clause with class action ban struck down post-Concepcion: Sanchez v. Valencia Holding Co.

In Sanchez v. Valencia Holding Co.,  ___ Cal.App.4th ___ (Oct. 24, 2011) the Court of Appeal (Second Appellate District, Division One) affirmed an order striking down an arbitration clause (which happened to include a class action ban) as unconscionable under Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000), notwithstanding AT&T Mobility v. Concepcion. 

Here is the Court's discussion of 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 op. at 11-12.  The Court was "not concerned with [the] class action waiver" because it found the whole arbitration clause unconscionable for other reasons. 

More discussion of the case can be found at The Complex Litigator and the Bailey Class Action Daily.

Supreme Court denies review in arbitration case: Brown v. Ralphs Grocery Co.

Last week, the Supreme Court denied review in Brown v. Ralphs Grocery Co., no. S195850.  Justice Baxter voted to grant review.

That is the case in which the Court of Appeal affirmed an order striking down an arbitration clause in a representative PAGA action for Labor Code violations, notwithstanding Concepcion.  Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011) (Second Appellate District, Division Five).  My original post on the case is here.

It is certainly possible that the defendant may seek review in the U.S. Supreme Court. 

SCOTUSblog's arbitration symposium

Recently I posted on SCOTUSblog's class action symposium,which included a series of articles focusing primarily on Dukes. Most of the commentators in that symposium appear to have a defense-side focus.

SCOTUSblog now has a similar symposium on arbitration, focusing primarily on Concepcion.  This symposium features an interesting contribution from Michael Rubin of Altshuler Berzon LLP in San Francisco. 

Recent Daily Journal article on Concepcion in California

On August 31, 2011, the Daily Journal had an article by attorney Christian Scali of Arent Fox LLP called "Did the Supremes go too far? The backlash against Concepcion" (hyperlink not available).

The article discusses the application of Concepcion in consumer, employment and CLRA cases in light of three recent decisions:  Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011), Arguelles-Romero v. Superior Court, 184 Cal.App.4th 825 (2010), and Fisher v. DCH Temecula Imports, 187 Cal.App.4th 601 (2010).  (For more on those cases, see these blog posts.) 

It is a very interesting article and worth finding in your pile of Daily Journals. 

On a related note, a petition for review was filed in Brown on August 23, 2011.  Brown v. Ralphs Grocery Co., no. S195850. 

Recent decisions of interest from other Circuits

Here are a few recent decisions of interest from other U.S. Courts of Appeals:

Behrend v. Comcast Corp., ___ F.3d ___ (3d Cir. Aug. 23, 2011) (affirming class certification of antitrust claims; "The factual and legal underpinnings of Wal-Mart—which involved a massive discrimination class action and different sections of Rule 23—are clearly distinct from those of this case. Wal-Mart therefore neither guides nor governs the dispute before us.")

In re Aqua Dots Products Liability Litigation, ___ F.3d ___  (7th Cir. Aug. 17, 2011) (affirming denial of class certification for lack of adequacy; Judge Easterbrook essentially held that a manufacturer recall already remedied the problem and a parallel class action would gain nothing)

In re Literary Works in Electronic Databases Copyright Litigation, ___ F.3d ___ (2d Cir. Aug. 17, 2011) (reversing certification of settlement class for lack of adequacy, finding conflicts among subgroups of class members and remanding for creation of subclasses represented by separate counsel)

Cruz v. Cingular Wireless, LLC, ___ F.3d ___ (11th Cir. Aug. 10, 2011) (applying Concepcion and upholding a no-class-action arbitration clause)

Lawson v. Life of the South Ins. Co., ___ F.3d ___ (11th Cir. Aug. 10, 2011) (declining to enforce a no-class-action arbitration clause under third-party beneficiary or equitable estoppel theories; the defendant was not a party to the contract containing the clause and the claims did not arise under that contract (citing Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042 (9th Cir. 2009))

Millea v. Metro-North Rwy Co., ___F.3d ___ (2d Cir. Aug. 8, 2011) (reversing statutory attorneys' fees award and remanding for recalculation; "Especially for claims where the financial recovery is likely to be small, calculating attorneys’ fees as a proportion of damages runs directly contrary to the purpose of fee-shifting statutes: assuring that civil rights claims of modest cash value can attract competent counsel.  The whole purpose of fee-shifting statutes is to generate attorneys’ fees that are disproportionate to the plaintiff’s recovery.  Thus, the district court abused its discretion when it ignored the lodestar and calculated the attorneys’ fees as a proportion of the damages awarded.")

In re Zurn Pex Plumbing Products Liability Litigation, ___ F.3d ___ (8th Cir. Jul. 6, 2011) ("[Defendant]'s desire for an exhaustive and conclusive Daubert inquiry before the completion of merits discovery cannot be reconciled with the inherently preliminary nature of pretrial evidentiary and class certification rulings.  [¶]  The main purpose of Daubert exclusion is to protect juries from being swayed by dubious scientific testimony. That interest is not implicated at the class certification stage where the judge is the decision maker."; affirming class certification of warranty and negligence claims and distinguishing Dukes)

Jock v. Sterling Jewelers, Inc., ___ F.3d ___ (2d Cir. Jul. 1, 2011) (interpreting Stolt-Neilsen and class arbitration proceedings)

New arbitration decision briefly mentions Concepcion: Mission Viejo Emergency Medical Assoc. v. Beta Healthcare Group

In Mission Viejo Emergency Medical Associates v. Beta Healthcare Group, ___ Cal.App.4th ___ (Jun. 29, 2011; pub. ord. Jul. 27, 2011), the Court of Appeal (Fourth Appellate District, Division Three) reversed an order denying a motion to compel arbitration in a non-class-action case.

In doing so, the Court had this to say about Concepcion: 

We invited the parties to provide their comments on the recent United States Supreme Court case, AT&T Mobility LLC v. Concepcion (2011) __ U.S. __ [131 S.Ct. 1740] (AT&T).  Defendants appear to argue that AT&T essentially preempts all California law relating to unconscionability.  We disagree, as the case simply does not go that far.  General state law doctrine pertaining to unconscionability is preserved unless it involves a defense that applies “only to arbitration or that derive[s] [its] meaning from the fact that an agreement to arbitrate is at issue.”  (Id. at p. __ [131 S.Ct. at p.1746].)  This simply does not apply here.

Slip op. at 13 n.4. 

The case is not a class action, so the opinion does not address arbitration clauses with class action bans, but the language above is nonetheless interesting.  Many thanks to Mark Moore of Spiro Moss LLP for bringing it to my attention. 

UPDATE:  Scott Leviant of The Complex Litigator has a more detailed post on this opinion.

Court of Appeal strikes down class action ban despite Concepcion: Brown v. Ralphs Grocery Co.

In Brown v. Ralphs Grocery Co., ___ Cal.App.4th ___ (Jul. 12, 2011), the Court of Appeal (Second Appellate District, Division Five) addressed the impact of the Concepcion case.  The trial court denied a motion to compel arbitration of a representative PAGA action for Labor Code violations, holding that the arbitration clause's ban on class and representative actions was unenforceable in the PAGA context.  Slip op. at 4.  The Court of Appeal affirmed.

After taking supplemental briefing on Concepcion, the Court of Appeal held that the Federal Arbitration Act, as interpreted in Concepcion, did not preempt California decisional law interpreting PAGA rights as unwaivable:

In short, representative actions under the PAGA do not conflict with the purposes of the FAA.  If the FAA preempted state law as to the unenforceability of the PAGA representative action waivers, the benefits of private attorney general actions to enforce state labor laws would, in large part, be nullified.

Slip op. at 12.

One justice dissented from the PAGA holding:

Given the consistent line of [U.S.] Supreme Court cases mandating enforcement of arbitration clauses under the FAA, even in the face of California statutory or decisional law requiring court or administrative action rather than arbitration, I cannot join the majority’s conclusion that the arbitration agreement’s waiver of representative PAGA actions is unenforceable.

Kriegler, J., dissenting (slip op. at 4-5).

Concepcion does not apply in state court?

Last December, I reported on the Supreme Court of Kentucky's decision in Schnuerle v. Insight Communications Co., ___ S.W.3d ___,2010 WL 5129850 (Ky. Dec. 16, 2010), striking down a no-class-action arbitration clause as unconscionable under Kentucky law. 

According to the docket (to pull up the case, insert year 2008, case no. 789), the defendants filed a rehearing petition in January 2011.  That petition was still pending when the U.S. Supreme Court handed down Concepcion on April 27, 2011.  Two days later, on April 29, 2011, the defendants filed a motion for leave to file a notice of supplemental authority. 

On May 10, 2011, the plaintiffs, represented by Paul Bland and Leslie Bailey of Public Justice, filed a response to that motion addressing Concepcion. 

The first argument the response brief makes (at pp. 2-5) is that Concepcion does not apply to cases pending in state court rather than in federal court.  The brief points out that Justice Clarence Thomas has consistently held, in every case in which the issue has come up since 1995, that the FAA does not apply in state-court actions.  Accordingly, had the Concepcion case itself been a state-court action rather than a federal case, his vote likely would have aligned him with the dissenters.  (See this blog post for more on Justice Thomas's concurrence.)

The brief cites federal appellate-level precedents, including a Ninth Circuit decision, in support of the idea that lower courts should consider how the votes would have been cast if the procedural posture of a case had been different. 

The brief also argues that Kentucky law is narrower than the Discover Bank rule found preempted in Concepcion, and that the defendants waived the argument that the FAA applies.

On May 11, 2011, the Kentucky Supreme Court granted the defendants' motion and accepted their supplemental filing.  It stands to reason that both the supplemental filing and the response would be considered.  It will be interesting to see how this case turns out.

"Class Action Ruling an Earthquake for California Litigation"

Petra Pasternak of the Recorder had this article last week on the Concepcion decision.  The article quotes attorney Michael Rubin with an interesting take on the decision:

Michael Rubin of San Francisco's Altshuler Berzon said the decision doesn't actually prohibit class actions in arbitration, so the handful of class actions his firm has will likely move forward.

"All the decision today says is that a clause prohibiting class actions cannot be the basis for striking down an arbitration agreement as unconscionable," Rubin said. "That means arbitration agreements can still be struck down as unconscionable on other grounds," such as if it limits substantive rights or remedies. He said he expects to see a rise in mass tort cases to make up for the curb in class actions.

On Friday, the Recorder had another article on Concepcion, "Plaintiffs Don't See Easy Way Around AT&T Ruling" by Cheryl Miller (subscrption).  Among other things, this article says that a California State Senator plans to introduce "a legislative countermeasure" to the decision. 

In light of Justice Thomas's concurrence, I suppose such legislation would have to declare that contractual class action bans (whether related to an arbitration clause or not) are unlawful and void from inception (instead of merely unenforceable as Discover Bank held).  That would bring such bans within the savings clause of section 2 of the Federal Arbitration Act, as Justice Thomas interpreted it.  Presumably, that would in turn shift his vote over to align with the four dissenters. 

As Justice Thomas reads it,

[Section 2] require[s] enforcement of an agreement to arbitrate unless a party successfully asserts a defense concerning the formation of the agreement to arbitrate, such as fraud, duress, or mutual mistake.  [Citation.]  Contract defenses unrelated to the making of the agreement—such as public policy—could not be the basis for declining to enforce an arbitration clause.

Under this reading, the question here would be whether California’s Discover Bank rule relates to the making of an agreement. I think it does not.

Slip op. at 3-5 (Thomas, J. concurring) (emphasis added; footnote omitted). 

Blogosphere commentary on AT&T Mobility v. Concepcion

Since last Wednesday the legal blogosphere has been busily abuzz about AT&T Mobility v. Concepcion, ___ U.S. ___ (Apr. 27, 2011).

SCOTUSblog has two posts with commentary along with its usual roundups. 

Public Citizen's Consumer Law & Policy Blog has collected links to much of the early press coverage.  ContractProfs Blog similarly has a roundup of media and blogosphere coverage.

Cornell Law School Professor Michael C. Dorf deconstructs the opinion at his blog, Dorf on Law:

[T]he case is arresting because the Court's ruling runs away from principles that conservatives purport to value in other contexts.

....

In the AT&T case, ... the majority opinion exhibits tension with another jurisprudential principle favored by Justice Scalia and other conservatives.  In cases under the Equal Protection Clause and the Free Exercise Clause, Justice Scalia and his fellow travelers have repeatedly argued against disparate impact tests.  To discriminate, they say, is to use a criterion that on its face draws an impermissible distinction or, in rare circumstances, to use a formally neutral criterion that was adopted for the purpose of discriminating and has a disparate impact.

Yet in the AT&T case, the majority is willing to find that California's no-class-waiver rule does not apply to "any contract" because, even though it does apply to any contract, it impedes what Justice Scalia deems to be the purpose of the FAA.  It is possible to make this argument for the hypothetical no-jury-waiver and no-discovery-waiver rules, because then the state rule, while formally applying to any contract, would really apply only to arbitration contracts.  But the existence of arbitration class actions means that it's very hard to say that the California law's (supposed) disparate effect on arbitration must be evidence that the California no-class-waiver rule was adopted for the purpose of singling out arbitration.  Consequently, it appears that the Court's conservatives are betraying their general hostility to disparate impact for its own sake.

Attorney Matt Bailey of the Bailey Class Action Bilateral Arbitration Daily considers whether Justice Scalia's "majority" opinion is actually a 4-justice plurality opinion with less robust precedential effect (a question that probably crossed the minds of many who read the opinion):

[I]t is not entirely clear whether there exists any common overlap between the analysis of the majority and Justice Thomas. Specifically, the majority reasoned that the “saving clause [in § 2] permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability’” [Slip Opinion, at 5], but concluded that preemption must be found when doing so “stand[s] as an obstacle to the accomplishment of the FAA’s objectives.” See Slip Opinion, at 9.  Justice Thomas’ concurrence unequivocally rejected the majority’s “purposes-and-objectives preemption”, however, finding instead that the Discover Bank rule was in direct conflict with § 2.

Joe Consumer of The Pop Tort takes solace that the newly-created Consumer Financial Protection Bureau has a statutory mandate to study the use of arbitration clauses in consumer financial contracts. 

In fact, the Consumer Financial Protection Act of 2010 (which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010) goes much further, authorizing the Bureau to promulgage regulations prohibiting arbitration clauses in certain types of consumer contracts: 

SEC. 1028. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.
(a) STUDY AND REPORT.—The Bureau shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.
(b) FURTHER AUTHORITY.—The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study conducted under subsection (a). 
(c) LIMITATION.—The authority described in subsection (b) may not be construed to prohibit or restrict a consumer from entering into a voluntary arbitration agreement with a covered person after a dispute has arisen.
(d) EFFECTIVE DATE.—Notwithstanding any other provision of law, any regulation prescribed by the Bureau under subsection (b) shall apply, consistent with the terms of the regulation, to any agreement between a consumer and a covered person entered into after the end of the 180-day period beginning on the effective date of the regulation, as established by the Bureau.

12 U.S.C. § 5518 (emphasis added). 

Elizabeth Warren, the head of the Bureau, has called arbitration "Darth Vader's Death Star--the Empire always wins."  So there is a very real possibility that certain classes of consumer contracts may end up unaffected by Concepcion.  We'll have to wait and see.

At the Huffington Post, David Arkush of Public Citizen laments the end of the American legal system as we  know it:

If recent crises have taught us anything, it's that disaster follows quickly when companies have too little oversight. AT&T is pushing the outer limits of deregulation, seeking a world in which companies can use one-sided contracts to grant themselves immunity from accountability for a vast range of wrongdoing. Concepcion represents a giant leap toward a dystopian legal system that the Supreme Court should have rejected out of hand -- lawlessness for major corporations and corporate-made law for the rest of us.

Some might call this hyperbole, others pragmatism.

At ADR Profs Blog, Professor Paul F. Kirgis of St. John's University School of Law offers this advice for attorneys with business clients:

Coupled with Stolt-Nielsen, which held that an arbitrator may not interpret silence in an arbitration agreement as allowing for class arbitration, Concepcion means companies no longer have to subject themselves to class actions by consumers (or employees, suppliers, or anyone else with whom they contract). As long as it is sufficiently favorable on cost to the consumer, any arbitration agreement that does not expressly allow for class treatment (and of course, none of them do expressly allow for class treatment) now has the effect of prohibiting class relief. I would submit that any attorney who does not now advise her business clients to put arbitration agreements in all consumer contracts risks a finding of legal malpractice.

Two other law professors, Sarah Cole of the Ohio State Univeristy Moritz College of Law, and Jean Sternlight of the University of Nevada at Las Vegas School of Law, have posts on the decision at ADR Profs Blog.

BREAKING NEWS: U.S. Supreme Court hands down AT&T Mobility LLC v. Concepcion

This morning, the U.S. Supreme Court handed down its decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ (Apr. 27, 2011).  I will have more later when I've had an opportunity to review it. 

According to the first page of the syllabus, the Supreme Court holds that the Federal Arbitration Act preempts our Supreme Court's Discover Bank opinion. 

Nevada Supreme Court stikes down "no-class-action" arbitration clause: Picardi v. District Court

In Picardi v. District Court, ___ P.3d ___, 2011 WL 1205284 (Nev. Mar. 31, 2011), the Nevada Supreme Court struck down a no-class-action arbitration clause as unconscionable under Nevada law:

Nevada public policy favors allowing consumer class action proceedings when the class members present common legal or factual questions but their individual claims may be too small to be economically litigated on an individual basis. We conclude that a clause in a contract that prohibits a consumer from pursuing claims through a class action, whether in court or through arbitration, violates Nevada public policy. Because the class action waiver provision in this matter precludes any form of class action relief, it is contrary to public policy and is therefore unenforceable. Here, because the terms of the arbitration agreement provide that it is void if the class action waiver is found unenforceable, there is no basis on which to compel arbitration. Accordingly, the district court abused its discretion in compelling arbitration, and writ relief is warranted.

Slip op. at 2 (footnote omitted).

The opinion cites two California cases, Szetela v. Discover Bank, 97 Cal.App.4th 1094 (2002) and Fisher v. DCH Temecula Imports LLC, 187 Cal.App.4th 601 (2010), but does not cite our leading case, Discover Bank v. Superior Court (Boehr), 36 Cal.4th 148 (2005).

"Consumer Arbitrations at Risk"

The January 2011 issue of California Lawyer had a very interesting article by Pamela McLean on the Concepcion case, still pending before the U.S. Supreme Court.  The article begins:

It is no accident that AT&T Mobility's ban on class actions in arbitration caught the eye of the U.S. Supreme Court, which selected it from a runway parade of other challenges to mandatory arbitration clauses that include class waivers. The phone company had groomed its consumer contract for years, anticipating a model test case. It got one in AT&T Mobility LLC v. Concepcion, No. 09-893, argued before the Court in November.

....

In a highly unusual step two years ago, AT&T filed an amicus brief with the U.S. Supreme Court in an appeal by T-Mobile USA, Inc., whose own arbitration clause had been found unconscionable (T-Mobile USA, Inc. v. Laster, 407 F. Supp. 2d 1181 (S.D. Cal. 2005) cert. denied, 553 U.S. 1064 (2008)). In its brief for respondents, AT&T asked the Court to deny certiorari, suggesting that its arbitration clause was a "realistic and effective dispute resolution vehicle." When the Court denied cert, it opened the door for AT&T to submit Concepcion the following year.

Six pending cases to watch in 2011

Here are six important cases to follow in the coming months (listed in no particular order):

1. Kwikset Corp. v. Superior Court (Benson), no. S171845 (Cal.).  This UCL case was argued in the California Supreme Court on November 3, 2010, which means that the opinion is due by Tuesday, February 1, 2010.  Because the Court hands down opinions on Mondays and Thursdays, we can expect the opinion no later than Monday, January 31, 2011 -- assuming former Chief Justice George sends his vote in from Antarctica!  In this case, the Supreme Court will be interpreting Prop. 64's "lost money or property" language. 
   
   
2. AT&T Mobility LLC v. Concepcion, no. 09-893 (U.S.).  This case was argued in the U.S. Supreme Court on November 9, 2010.  The issue is whether the FAA preempts state-law unconscionability principles as applied to no-class-action arbitration clauses in consumer contracts of adhesion, and the continuing vitality of our own Supreme Court's Discover Bank decision could be at stake.  The opinion will be filed by the end of the current Term, which means no later than June 27, 2011. 
   
3. Brinker Restaurant Corp. v. Superior Court (Hohnbaum), no. S166350 (Cal.).  This wage and hour case raises substantive questions relating to California's meal period and rest break laws, but could also be a significant class certification case.  The Supreme Court has not directly addressed core class certification issues since Sav-on in 2004.  The case is fully briefed, but has not yet been scheduled for oral argument.  It may or may not be set this year.  [Disclosure:  My firm is co-counsel for the workers in Brinker.]
   
   
4. Wal-Mart Stores, Inc. v. Dukes, no. 10-277 (U.S.).  The U.S. Supreme Court granted cert. in this case on December 6, 2010, and has scheduled oral argument for March 29, 2010. The opinion will be filed by the end of June 2011, when the current Term ends.  The district court granted class certification of certain employment discrimination claims under Rule 23(b)(2), and the Ninth Circuit, sitting en banc, affirmed in part. 
   
   
5. Mazza v. American Honda Motor Co., no. 09-55376 (9th Cir.).  In this auto defect case, the district court granted nationwide class certification of UCL and CLRA claims for recovery of economic losses.  Mazza v. American Honda Motor Co., 254 F.R.D. 610 (C.D. Cal. 2008).  The Ninth Circuit granted a Rule 23(f) petition for permission to appeal, and the case was argued on June 11, 2010.  One day after the Supreme Court granted cert. in Dukes, however, the Ninth Circuit issued a sua sponte order deferring submission of the action pending resolution of that case.
   
   
6. Sullivan v. DB Investments, Inc., no. 08-2784 (3d Cir.). In this antitrust case for price-fixing in the diamond industry, the Third Circuit reversed the district court's order granting final approval of a nationwide class action settlement.  Sullivan v. DB Investments, Inc., 613 F.3d 134 (3d Cir. 2010).  On August 27, 2010, en banc rehearing was granted, and the case has been scheduled for argument on February 23, 2011.  On November 10, 2010, the Court ordered supplemental briefing on some broad class-certification-related questions. 

New unpublished class arbitration decision: Mahmud v. Ralphs Grocery Co.

Many thanks to the reader who brought a new unpublished opinion to my attention: Mahmud v. Ralphs Grocery Co., no. B219688 (Jan. 5, 2011). 

In Mahmud, the Court of Appeal (Second Appellate District, Division Four) refused to enforce an arbitration clause with a class action waiver.  In so holding, the Court adopted the reasoning of the Second Circuit in Fensterstock v. Education Finance Partners, 611 F.3d 124 (2d Cir. 2010) (discussed in this blog post):

The issue addressed in Stolt-Nielsen -- whether parties to an arbitration agreement may be compelled to arbitrate a dispute on a classwide basis when the agreement is silent -- is not at issue here.  The trial court did not order the parties to arbitrate on a classwide basis.  Instead, the court found the arbitration agreement’s class action waiver unenforceable, denied Ralphs’ petition to compel without prejudice, and permitted the action to proceed [in court], at least until the class issue is resolved.  The trial court’s actions were appropriate under Gentry, and were not inconsistent with Stolt-Nielsen.

Our conclusion is supported by the Second Circuit’s recent decision in Fensterstock v. Education Finance Partners (2d Cir. 2010) 611 F.3d 124.  There, a borrower claimed that the lender had misapplied some of the borrower’s monthly payments, resulting in an overcharge for interest.  Applying California law, the district court found that a promissory note provision providing for arbitration of disputes over the loan on an individual basis only was unconscionable under Discover Bank, supra, 36 Cal.4th 148.  The circuit court affirmed the unconscionability finding, specifically stating that California law as construed by the Supreme Court in Discover Bank was not preempted because it “‘place[s] arbitration agreements with class action waivers on the exact same footing as contracts that bar class action litigation outside the context of arbitration.’”  (Fensterstock v. Education Finance Partners, supra, 611 F.3d at p. 134.)  Accordingly, the circuit court upheld the district court order declining to stay the action and compel arbitration.

Slip op. at 12 (footnotes omitted). 

Kentucky Supreme Court strikes down "no-class-action" arbitration clause: Schnuerle v. Insight Communications Co.

In Schnuerle v. Insight Communications Co., ___ S.W.3d ___ (Ky. Dec. 16, 2010), the Supreme Court of Kentucky struck down a no-class-action arbitration clause as unconscionable under Kentucky law. 

Among other authorities, the opinion relied on two of our own Supreme Court's leading decisions, Vasquez and Discover Bank. 

Oral argument preview: AT&T Mobility LLC v. Concepcion

Today at 10:00 a.m. Eastern, the U.S. Supreme Court will hear oral argument in AT&T Mobility LLC v. Concepcion, no. 09-893.   AT&T's reply brief (which consists mainly of a frontal attack against the validity of Discover Bank) was only just filed eleven days ago, on October 29, 2010. 

Transcripts of U.S. Supreme Court arguments are generally available within hours after the argument takes place.  When it is posted online, the argument transcript in Concepcion should be available at this link.  (Also, here's the link to the main argument transcripts page.)

Sunday's San Francisco Chronicle had an opinion piece called "Supreme Court case could end class action suits," and on November 5 the Los Angeles Times reported that "Consumers' right to file class actions is in danger."  The American Bar Association's preview of the case summarizes the proceedings and holdings below and the arguments made in the briefs.   [Links via SCOTUSblog.]

U.S. Supreme Court briefing in AT&T Mobility LLC v. Concepcion

The folks at Consumer Law & Policy Blog have a very useful page with links to all of the briefs (merits and amicus) in AT&T Mobility LLC v. Concepcion, no. 09-893.  The page also has links to a variety of commentary on the case, which is scheduled for oral argument on Tuesday, November 9, 2010. 

Also, here is a direct link to the amicus brief of Public Justice filed on October 6, 2010.

U.S. Supreme Court class arbitration case set for argument: AT&T Mobility v. Concepcion

At the Consumer Attorneys of California Class Action Symposium last Friday, I learned that oral argument has been scheduled for Tuesday, November 9, 2010 in AT&T Mobility LLC v. Concepcion, no. 09-893. 

This is the case in which the U.S. Supreme Court will be addressing whether the FAA preempts state-law unconscionability principles as applied to no-class-action arbitration clauses in consumer contracts of adhesion.  SCOTUSblog has collected all of the briefs at this link. 

Two new opinions on no-class-action arbitration clauses: Fisher v. DCH Temecula Imports LLC and Walnut Producers of California v. Diamond Foods, Inc.

The Court of Appeal has recently handed down two new decisions addressing arbitration clauses with class action bans. 

In the first, Fisher v. DCH Temecula Imports LLC, ___ Cal.App.4th ___ (Aug. 13, 2010), the Court of Appeal (Fourth Appellate District, Division Two) held that the CLRA's no-waiver provision (Civ. Code section 1751) and its class action provision (Civ. Code section 1781) trumped a class action ban in an arbitration clause:

[T]he clear language of the CLRA does not allow a consumer to waive the provisions of the CLRA in advance, including the right to bring a class action. Since the plain language of the statute provides that a consumer “may” bring a class action if there is damage to other consumers similarly situated, he or she cannot be asked to waive this class action right in advance.

Slip op. at 24.  This is an interesting argument that no appellate court had expressly adopted before.  The Court held the entire arbitration clause unenforceable.  Id. at 24-25.

In the second case, Walnut Producers of California v. Diamond Foods, Inc., ___ Cal.App.4th ___ (Aug. 16, 2010), the Court of Appeal (Third Appellate District) held that an arbitration clause with a class action ban in a commercial contract was not unconscionable.  Slip op. at 12-25.  The Court also held that an order striking class allegations from a complaint is appealable and reviewed de novo.  Id. at 5-8.

The Complex Litigator also has a short post on these two decisions.

Second Circuit strikes down no-class-action arbitration clause under California law: Fensterstock v. Education Finance Partners

In Fensterstock v. Education Finance Partners, ___ F.3d ___ (2d Cir. Jul. 12, 2010), the Second Circuit, applying California law (including Discover Bank), struck down a no-class-action arbitration clause as unconscionable.  

The court invalidated the entire arbitration clause, holding that under the U.S. Supreme Court's recent decision in Stolt-Neilsen, the court had "no authority to order class-based arbitration" unless the contract authorized it.  Slip op. at 31.  Because the contract did not authorize class arbitration (on the contrary, the contract was silent on that topic once the unconscionable class action ban was excised), the class action could not proceed in arbitration and would have to proceed in the district court instead.  Id. at 31-32. 

[HT: Blawgletter]  UPDATE:  There was an error in the link to the opinion, which has been fixed. 

U.S. Supreme Court grants cert. in class arbitration case: AT&T Mobility LLC v. Concepcion

Last week, on May 24, 2010, the U.S. Supreme Court granted cert. in AT&T Mobility LLC v. Concepcion, no. 09-893. 

The Ninth Circuit's opinion in this case was Laster v. AT&T Mobility LLC, 584 F.3d 849 (2009), affirming an order striking down a no-class-action arbitration provision as unconscionable under California law (namely, Discover Bank).  (See my very brief blog post on the case from last October.) 

This is the question presented as stated in the cert. petition:

Whether the Federal Arbitration Act preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures--here, class-wide arbitration--when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.

In other words, does the FAA preempt state-law unconscionability principles as applied to no-class-action arbitration clauses in consumer contracts of adhesion? 

The briefs have been collected at ScotusBlog (scroll down). Of particular interest is a short supplemental brief filed by the respondents (i.e., the consumers) on Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. ___ (Apr. 27, 2010):

Stolt-Nielsen concerned whether parties could be compelled to arbitrate on a classwide basis where they had not agreed to do so. That issue is not remotely present in this case, and does not bear on the question presented. Here, there is no dispute that AT&T’s agreement forecloses all classwide proceedings. The issue here is not (as in Stolt-Nielsen) whether a party may be compelled to participate in class arbitration in the face of an agreement that does not authorize it, but rather whether the agreement itself may be held invalid, under generally applicable state contract law, because it excludes class remedies. See 9 U.S.C. § 2 (arbitration agreements are valid and enforceable, “save upon such grounds as exist in law or equity for the revocation of any contract”).

Supp. Brief of Respondents, May 7, 2010, at 1. 

New opinion on class arbitration: Arguelles-Romero v. Superior Court

In Arguelles-Romero v. Superior Court (AmeriCredit Financial Services, Inc.), ___ Cal.App.4th ___ (May 13, 2010; modified May 20, 2010), the Court of Appeal (Second Appellate District, Division Three) addressed a no-class-action arbitration clause.  The opinion contains an interesting discussion of both Discover Bank and Gentry. 

Recent U.S. Supreme Court cases of interest: Purdue and Stolt-Nielsen

I attended yesterday's argument in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), but I have not yet had time to write up my report.  Meanwhile, the U.S. Supreme Court has handed down two decisions of interest over the past couple of weeks:

• In Purdue v. Kenny A., ___ U.S. ___ (April 21, 2010), the Supreme Court addressed calculation of attorneys' fees in federal civil rights cases, and in particular, the propriety of lodestar enhancements.  Blawgletter has an interesting post on the opinion, and this was my prior blog post on the case.

• In Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., ___ U.S.___ (April 27, 2010), the Supreme Court addressed class arbitration. 

Ninth Circuit strikes down another no-class-action arbitration clause: Omstead v. Dell, Inc.

In Omstead v. Dell, Inc., ___ F.3d ___ (9th Cir. Feb. 5, 2010), the Ninth Circuit struck down a no-class-action arbitration clause as unconscionable under Discover Bank.

"Class Arbitration After Gentry"

On Tuesday, December 29, 2009, the Daily Journal had a perspective article called "Class Arbitration After Gentry" (subscription).  The article, by Richard L. Kellner and Karen Liao of Kabateck Brown Kellner in Los Angeles, begins:

More than two years have passed since the California Supreme Court decided Gentry v. Superior Court, 42 Cal.4th 443 (2007), which ostensibly opened the door to arbitrations in employment class action[s]. While proponents of class action arbitration rejoiced when the Gentry opinion was issued, the floodgates of class action arbitrations never opened. In all likelihood, that is because questions remain regarding the procedures, scope and implications of class action arbitrations.

Ninth Circuit strikes down another no-class-action arbitration clause: Laster v. AT&T Mobility LLC

In Laster v. AT&T Mobility LLC, ___ F.3d ___ (9th Cir. Oct. 27, 2009), the Ninth Circuit struck down yet another no-class-action arbitration clause.  The Court also held that the Federal Arbitration Act does not preempt California unconscionability law.