Source: https://www.calbizlit.com/cal_biz_lit/2014/07/so-what-the-heck-is-happening-with-contractual-arbitration-in-california.html
Timestamp: 2019-04-25 11:01:22+00:00

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Cal Biz Lit: So What the Heck is Happening With Contractual Arbitration in California?
So What the Heck is Happening With Contractual Arbitration in California?
CBL is not just about Proposition 65 – it just sometimes seems that way. But the goal here is to provide out-of-state lawyers, general counsel, and other interested parties with some useful information about cutting edge issues facing litigants here in the Golden State. And today, we’re talking about the seemingly never-ending battle about contractual arbitration. There is a lot going on, resulting, no doubt, in an overly long post. Here goes.
[The FAA] permits arbitration agreements to be declared unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract." This saving clause permits agreements to arbitrate to be invalidated by "generally applicable contract defenses, such as fraud, duress, or unconscionability," but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.
Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659 (“Sonic I”) and Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109 (“Sonic II”) arrived on the scene, respectively, before and after Concepcion. In Sonic I, before Concepcion, the Cal Supremes considered an employee/employer contract that (a) had binding arbitration provision and (b) waived the right to a “Berman hearing,” a California administrative hearing mechanism for wage claims. The Cal Supremes held that the waiver of the Berman hearing was unconscionable, that the employee had a right to the hearing, but that if the arbitration provision was valid, arbitration would supplant the post-Berman court processes.
The interest served by the FAA is that of a process with lower costs, greater efficiency and speed. The interest served by the Berman hearing process is that of a process with lower costs, greater efficiency and speed. So, asked Cal Supremes, did the particular arbitration process provided for in the contract (American Arbitration Rules) promote those interests (there wasn’t evidence of that on the record). If not, did the Berman process better serve that efficiency than the arbitration rules selected by the agreement? If so, then waiver of the Berman hearing could well make the agreement unconscionable. If not, then possibly not. So the case was remanded to the trial court to find out.
The Defendant petitioned SCOTUS for a hearing, and the petition was denied on June 9, 2014.
The next battlefield in the California arbitration wars was California’s Labor Code Private Attorney General Act of 2004 (PAGA)(Lab. Code § 2698 et seq.) PAGA is a private bounty hunter statute, in which employees are authorized to bring actions for civil penalties on behalf of the state and against an employer for Labor Code violations. Most of the proceeds go to the state. And in last month’s Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the employer had signed an arbitration agreement and waiver of PAGA rights, then tried to proceed with a class action under PAGA. Cal Supremes ruled that the FAA’s goal of promoting arbitration as a means of private dispute resolution did not prevent the state from “deputizing employees to prosecute Labor Code violations on the state’s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.” So even though SCOTUS overruled California’s rule against class action waivers from Gentry v. Superior Court (2007) 42 Cal.4th 443, Cal Supremes reinstated it as to PAGA matters. Time will tell if this one survives a petition for certiorari.
Next up, we have Sanchez v. Valencia Holdings. This is a consumer arbitration case involving an automobile dealership. The Plaintiff filed a class action suit against the dealer for alleged violations of the Consumers Legal Remedies Act (Civ. Code, §§ 1750-1784), the Automobile Sales Finance Act (Civ. Code, §§ 2981-2984.6), the unfair competition law (Bus. & Prof. Code, §§ 17200-17210), the Song-Beverly Consumer Warranty Act (Civ. Code, §§ 1790-1795.8), and the California Tire Recycling Act (Pub. Resources Code, §§ 42860-42895). Plaintiff’s retail installment sales contract contained a binding arbitration provision and class waiver, and the dealer sought enforcement.
First, a party who loses before the single arbitrator may appeal to a panel of three arbitrators if the award exceeds $100,000. Second, an appeal is permitted if the award includes injunctive relief. Third, the appealing party must pay, in advance, "the filing fee and other arbitration costs subject to a final determination by the arbitrators of a fair apportionment of costs." Fourth, the provision exempts repossession from arbitration while requiring that a request for injunctive relief be submitted to arbitration. Although these provisions may appear neutral on their face, they have the effect of placing an unduly oppressive burden on the buyer. In assessing unconscionability, we focus on the practical effect of a provision, not a facial interpretation.
The parties and interested persons and entities are invited to file supplemental briefing on the following questions. In formulating the standard for determining whether a contract or contract term is substantively unconscionable, this court has used a variety of terms, including "unreasonably favorable" to one party (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145); "so one-sided as to shock the conscience" (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (2012) 55 Cal.4th 223, 246); "unfairly one-sided" (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071-1072; "overly harsh" (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114; and "unduly oppressive" (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 925). Should the court use only one of these formulations in describing the test for substantive unconscionability and, if so, which one? Are there any terms the court should not use? Is there a formulation not included among those above that the court should use? What differences, if any, exist among these formulations either facially or as applied?

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