Oral argument report #2: Gentry v. Superior Court

Thanks to Anthony Zaller and Brian Van Vleck, authors of California Labor & Employment Defense Blog, for sending in their perspective on the Gentry argument:

We probably can’t improve much on Kelly Chen’s excellent factual reportage of the oral arguments in Gentry. Kelly concludes, however, that “as a recent law school graduate, I have to humbly admit I’m too junior to make a prediction.” Our predictions are surely no better than Kelly’s but we aren’t constrained by her prudent good sense. Consequently, below is our take on the hearing as well as some speculation about where we think the Justices may be heading with their eventual opinion.

Certain aspects of the hearing had an unmistakable “play within a play” quality. For example, the respective parties and their counsel were arguing first and foremost about whether the particular arbitration agreement drafted by Circuit City and signed by Mr. Gentry would be upheld and enforced. On the other hand, the assembled observers (and the larger community of class action practitioners), were more intently focused on just one sub-issue -- i.e, the enforceability of the agreement’s provision prohibiting Gentry from pursuing a class-wide arbitration.

Based on the representations of counsel at the hearing (and, as a disclaimer, we are not independently familiar with the briefs or appellate record), the record appears to contain more than enough ammunition for the Court to shoot down Circuit City’s agreement based on the application of familiar Armendariz factors, including lack of mutuality, a purported waiver of certain damages, a shortened statute of limitations, etc. But will the Court simply strike down the agreement based on the “totality of the circumstances,” and thereby leave open the possibility that a class arbitration ban could be upheld if it were part of a less unconscionable agreement? Or will the Court use Gentry as a vehicle to create a categorical rule that invalidates all pre-dispute restrictions on class arbitration?

Cliff Paleski, appearing on behalf [of] amici, argued forcefully in favor of a nearly per se rule that would prohibit any restrictions on class arbitration under any circumstances in employment disputes. His advocacy, while forceful and persuasive as always, was based essentially on public policy arguments. Moreover, to our bourgeois ears at least, his arguments had a radical flavor – advocating for example, that “all employment is inherently oppressive,” and that leaving the door open even a crack will lead to “no end of mischief” by avaricious employers seeking to strip workers of their rights.

As legal support for their proposition that employees can never waive their right to act as a class representative in arbitration, Gentry’s team could only cite to Labor Code section 923. This is nothing more than a vague Depression-era proclamation that collective bargaining is favored by public policy. We’ve never heard of anyone invoking Section 923 as support for employee class action rights and the argument didn’t seem to get a foothold with any of the justices either. All things considered, we’d have to rate this Section 923 argument as a prohibitive long shot.

Justice Kennard was by far the most active questioner and we wouldn’t be surprised if she is the author [of] the majority opinion. Some of her questions implied that she might have reservations about whether there was any principled basis for a broad ruling on the permissibility of class arbitration waivers. Justice Chin also focused on the tension between the competing public policies to enforce agreements and yet allow class wide procedural remedies. Chin seemed to come down on the side of enforcing arbitration agreements. The other Justices, by and large, avoided the big issues and focus[ed] more on the facts of this particular case that might render the agreement procedural or substantive unconscionability.

So what’s the bottom line? Our prediction is that the Court will hold the Circuit City agreement to be unenforceable. We are also willing to bet that, while the Court’s opinion may contain some language that the class arbitration ban contributed to this result, it will stop short of announcing any categorical rule against such provisions. As a result, a case-by-case analysis will be required and a properly drafted arbitration agreement may still offer an arguable defense to class certification. But it goes without saying that we could be wrong.

Thanks, Anthony and Brian, for that analysis. In addition to Kelly's summary, two readers (one of whom is Michael Walsh of the blog Wage Law) provided their thoughts in the comments to this post.

A couple of the reports on the argument mentioned Armendariz, but it will also be interesting to see how Discover Bank plays out as precedent in the employment context. As mentioned in these posts, I noticed a while back that the Supreme Court appeared to be granting review in cases upholding no-class-action arbitration clauses, and denying review in cases striking them down. The outcome predictions so far in Gentry are consistent with the idea that the Supreme Court felt that Discover Bank was being applied too leniently, or at least that lower courts needed more guidance. It would not be unreasonable for the Court to conclude that a public policy favoring access to the judicial system (which is what the class action device facilitates) should outweigh any countervailing public policy favoring a procedural device (arbitration) that serves to limit access. To a large degree, Discover Bank stands for exactly that proposition.

Comments

[Marc Primo]

"It would not be unreasonable for the Court to conclude that a public policy favoring access to the judicial system (which is what the class action device facilitates) should outweigh any countervailing public policy favoring a procedural device (arbitration) that serves to limit access. To a large degree, Discover Bank stands for exactly that proposition"

Just a quick note on this last comment - from the summary, I'm afraid the Court may fall into this same false dichotomy: class actions v. arbitration. I don't think thats the issue. It's class actions vs. class action bans/contract rights. Arbitration isn't really implicated because you can have a classwide arbitration. So the "public policy" sanctity of arbitrations isn't really at issue.

[Kimberly A. Kralowec]

Thanks, Marc, that's a good point. As you note, both of the argument summaries mentioned that at least one of the justices is looking at the case in terms of class action policy vs. arbitration policy, hence my comment in response. Your finer point is well taken.

[michael walsh]

To listen to Justices Werdegar and Kennard, it should be "class actions & employees' right to earned wages" v. "class action bans and contract rights."

[dogfacegeorge]

LC 923 "is nothing more than a vague Depression-era proclamation that collective bargaining is favored by public policy"???

It is the state's explicit policy that

(a) the government has encouraged capital conglomeration through incorporation, which has had the side-effect of
(b) distorting the free market for workers' services (many employees, few employers) to such a degree that unorganized workers do not, in true fact, enjoy a basic liberty, the liberty of contract.
(c) And, as a result, it is impossible for unorganized workers to obtain terms or conditions of employment that meet the extremely low threshhold of being labelled as "acceptable."

Thus, one party exercises its "freedom of contract" to impose "unacceptable" terms and conditions on the other.

That's not me talking. That is the State of California talking. LC 923 has been the unquestioned public policy of this state for 60 years. (And the point is so non-controversial that it is a long-standing federal policy as well - 29 U.S.C. Sec. 151.)

You'd think that non-activist courts, courts that submit to the declared will of the legislature, would take this LC 923 policy into consideration when making foundational statements such as "the law of employment is fundamentally contractual." Or, at the very least, acknowledge it, saying something like: "Although unorganized employees do not enjoy freedom of contract, nevertheless we intend to enforce the unacceptable terms and conditions of employment imposed on them by their corporate employers."