Oral argument report: Sonic-Calabasas A, Inc. v. Moreno

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: 

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TheCalifornia Supreme Court heard oral argument in Sonic-Calabasas, Inc. v.Moreno on Wednesday morning, April 3, 2013, regarding the issue of whetheror not ATT v. Concepcion would affect the prior order of the Court thatheld that a Berman hearing process with the Labor Commissioner’s office shouldtake place before submitting a matter to arbitration.  By way ofbackground, the first Sonic case was decided 4-3 by this Court and wassubsequently remanded by SCOTUS after Concepcion to reconsider in lightof that opinion.  Two of the majority justices have since departed butnone of the dissenters.  As such all eyes were on the Chief Justice and JusticeLiu who have since joined the Court.  True to this Justice Liu took centerstage at the proceedings and dominated the discussion between the lawyers.

Whatwas interesting about the arguments is that all sides suffered from some majordeficiencies.  It was clear that Justice Liu and his colleagues were notbuying into to the plaintiff’s arguments that Concepcion had no effect;clearly it did.  Justice Liu, who is brilliant by the way, made it clearthat in his view unconscionability analysis is not eliminated by Concepcionbut it must yield if it gets in the way of the FAA.  There was muchdiscussion by Cliff Palefsky and Miles Locker about policy considerations butthe justices did not want to deal with those points.  If the FAA wasoffended it was clear they had no choice but to send the matter toarbitration.  Justice Baxter began the proceeding by asking Miles Lockerif 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 opinionbut it doesn’t appear likely it will be clearly stated.  I would wager Gentrywon’t appear in the opinion at all.  Justice Liu was primarily focused atthe beginning of the case about the concept of speediness and indicated thatthe Berman hearing likely slows down the process significantly so thatspeediness is not achieved as a goal.  While Locker did indicate that aBerman process only takes 4½ months by statute (this may be true in theory butnot in practice; interestingly defendants did not refute this), Justice Liu wasclearly not convinced.  Once Locker left the podium Cliff Palefsky whoargued 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/orbonding of the award.  In a weaker moment for him he claimed Concepcionhelped the plaintiffs.  This clearly fell flat.  In his defense thebench was not buying into his American Express v. Italian Colorsvindication of statutory rights type argument.  About half-way throughPalefsky’s argument there was a murmur on the Court by Justice Chin, the ChiefJustice and Justice Liu to potentially remand the case to the trial court toexamine the unconscionability analysis.  Later Justices Corrigan, Kennardand Baxter joined in this chorus. 

JusticeLiu made clear at this point in the argument that Sonic I will notsurvive.  That point did not change.  The question then becomes whatto do next. Justice Liu admitted that the Sonic agreement clearly had shortcomingsbut the general principle of Sonic I could not survive.  He evenquoted Justice Scalia’s comments in Concepcion regarding the fact thatrights won’t be vindicated, “Too bad.”  For the liberal wing of theCalifornia Supreme Court to be quoting Justice Scalia from the bench wasdisheartening.

Theamicus for defense Felix Shafir was next and his argument devolved into arguingthe distinction between unconscionability and constitutional due processlimitations.  Justice Liu schooled the young man on this point but Ibelieve this entire discussion was not germane to the issue at hand and what todo with this case.

AsJohn Boggs, attorney for Sonic, took the podium the discussion moved.  Imust say of all the advocates that presented arguments today, clearly Mr. Boggshad the most compelling case.  Before he took the podium it appeared to methere was a strong consensus on the bench to remand the matter to the trialcourt.  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. 

JusticeKennard began her questioning by trying to determine what standard should beused for unconscionability, listing three alternatives. Justice Liu then askeda series of questions and he and Boggs were in complete agreement on what Concepcionheld. Boggs then brought up three very important points.  Remand would notmake sense because the issue was not addressed below, or in the Court ofAppeal and therefore waived.  Furthermore, he continued, this agreement’sidentical language has been “vetted” (my word not his) by this Court in Littlev. Auto Stiegler.   He further argued that plaintiffs concededthe agreement was enforceable and the only issue was the Berman waiver, and infact none exists.

Boggsmoved further in arguing that all rights and protections inside the Bermanhearing process would apply in the arbitration such as one-way feeshifting.  The court was confused and surprised by this concession andperhaps Boggs played too much of his hand when he did not need to.  In hisdefense though it seemed clear to me he was trying to convince the Court that theemployee would be no worse off and would have the same protections inarbitration as if the Berman process had occurred.  In many ways if that’sthe law that might not be a bad thing for employees.  If theBerman/arbitration allowed for one-way fee shifting and government lawyers,there might not be a dissuasion of employees to move forward.  I thinklikely this is not the real motivation behind this case and I think Justice Liuwas aware of this fact.  Boggs appears to me, though I must say I’mreading into his motivations, to be using a factual situation like ATT thatseems fair to the plaintiff and not causing undue burden, to create a rule thatin the end will be very harmful to plaintiffs and employees.  The ChiefJustice and Justices Liu and Baxter cross-examined Boggs on these points as histime expired as to the rights in a Berman hearing that would be protected inarbitration.

Inrebuttal, Locker may have saved the day, I don’t think so though if I had tobet on it.  He pointed out in no uncertain terms that there was a Bermanwaiver if not in name but in effect.  Further, he indicated that Littledid not deal with the Berman issue and while there was an acknowledgment at thetrial court level it is the denial of Berman rights that makes the agreementunconscionable.

Bottomline:  Two possible outcomes.  Either way Sonic I dies. They could punt and remand the unconscionability analysis in light of Concepcionback to the trial court and articulate a standard for them toconsider.  Justice Baxter was concerned at the outset about how much theplaintiff earned per hour so a modified Gentrytest could be established without citing Gentry. This would likely be a split decision 4-3 perhaps.  The other option isfor them to order the matter to arbitration in a narrow 7-0 ruling though JusticeWederger might dissent.  It’s hard to say as she was so quiet.  Inthis view of the case I don’t think defense lawyers get a big ruling but ratherthe ruling would speak of the protections the arbitration agreement providedthat were identical to the protections in the Berman hearing.  Since theplaintiff waived his right to contest this in any event they would be forced tosend the case to arbitration.  Either way I don’t expect a sweeping rulingand I don’t think it will change much in arbitration jurisprudence.  Wemust wait for Iskanian, unless as Cliff Palefsky said at the conclusionof his argument “I beg you, don’t do it, don’t read tea leaves.”  I don’tthink they will.  This plaintiff will likely lose but it won’t be thatbad.  On the broader point of whether Gentry is a dead letter, Ifear many of Justice Liu’s comments and he may be inclined to strike itdown.  It’s hard to tell but I would not want to bet on it.

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Thank you again, Eric.  I was promised one other report on the argument, which will go up when received.