In Kinecta Alternative Financial Solutions, Inc. v. Superior Court (Malone), ___ Cal.App.4th ___ (Apr. 25, 2012; modified May 1, 2012), the Court of Appeal (Second Appellate District, Division Three) addressed a case standing at the crossroads between Concepcion and Stolt-Nielsen.
Kinecta is an employment case. The employment agreement contained an arbitration clause with a class-action ban. The trial court granted the defendant's petition to compel arbitration but denied the defendant's motion to strike the class allegations from the complaint. The defendant filed a writ petition, which the Court of Appeal granted, reversing the latter order. Slip op. at 2-4.
The Court discussed the fact that Concepcion overruled Discover Bank v. Superior Court, 36 Cal.4th 148 (2005). Slip op. at 6-10.
The Court then addressed whether Concepcion also overruled Gentry v. Superior Court (Circuit City Stores, Inc.), 42 Cal.4th 443 (2007), which addressed unconscionability in the employment class action context. While "[a] question exists about whether Gentry survived the overruling of Discover Bank in Concepcion," the decision "has not been expressly abrogated or overruled," and therefore "appears to remain the binding law in California." Slip op. at 10 (citing Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489, 498, 505 (2011)).
The Court rejected the plaintiff's argument that the class-action ban was unconscionable under Gentry, not because Gentry has been overruled, but because the plaintiff "provided no evidence as to any of the four Gentry factors required to support a trial court’s determination that the arbitration should proceed as a class action arbitration." Slip op. at 11.
Next, the Court held that, under Stolt-Nielsen, the defendant could not be compelled to participate in a class arbitration because it had not consented to do so:
By denying Kinecta’s motion to dismiss class allegations from Malone’s complaint, the order compelling arbitration imposed class arbitration even though the arbitration provision was limited to the arbitration of disputes between Malone and Kinecta. .... We conclude that the parties did not agree to authorize class arbitration in their arbitration agreement. (Stolt-Nielsen, supra, 130 S.Ct. at p. 1776.) Therefore the order denying Kinecta’s motion to dismiss class claims without prejudice must be reversed.
Slip op. at 13.
What is strange about Kinecta is that it wholly failed to consider In re D. R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (N.L.R.B. Jan. 3, 2012), which held that agreements precluding collective action by employees, such as arbitration clauses with class action bans, are unenforceable as a matter of federal labor law, notwithstanding the FAA and Concepcion. My assumption would have to be that the parties did not bring this case to the court's attention.
If you have not read the D.R. Horton decision, I highly recommend it, even if you don't handle employment cases. Anyone litigating the Concepcion question will find it very interesting.
UPDATE: As a clarification, the federal labor laws construed in D.R. Horton apply to many, but not all, employers. It is possible that the case was not addressed in Kinecta because the employer's operations were not covered by the National Labor Relations Act. NELA has a helpful D.R. Horton fact sheet addressing that and other questions.
