Opinion ID: 1280542
Heading Depth: 2
Heading Rank: 2

Heading: California Approach

Text: The California Supreme Court, on the other hand, did consider whether a trial court could order class-wide arbitration under adhesive but enforceable franchise contracts in Keating, 31 Cal.3d 584, 183 Cal.Rptr. 360, 645 P.2d 1192, rev'd in part on other grounds in Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). [14] The California court concentrated on the negative implications of refusing to allow class-wide arbitration when arbitration has been made mandatory through an adhesion contract: If the right to a classwide proceeding could be automatically eliminated in relationships governed by adhesion contracts through the inclusion of a provision for arbitration, the potential for undercutting these class action principles, and for chilling the effective protection of interests common to a group, would be substantial. Arbitration proceedings may well provide certain offsetting advantages through savings of time and expense; but, depending upon the nature of the issues and the evidence to be presented, it is at least doubtful that such advantages could compensate for the unfairness inherent in forcing hundreds or perhaps thousands, [sic] of individuals asserting claims involving common issues of fact and law to litigate them in separate proceedings against a party with vastly superior resources. Keating, 31 Cal.3d at 609, 183 Cal.Rptr. 360, 645 P.2d 1192. The California Supreme Court, like the Seventh Circuit, drew an analogy between ordering consolidation and classwide arbitration to support its decision. In 1982, when Keating was decided, the Second Circuit permitted consolidation where the agreement was silent. Compania Espanola de Pet., S.A. v. Nereus Shipping, 527 F.2d 966 (2d Cir.1975), cert. denied 426 U.S. 936, 96 S.Ct. 2650, 49 L.Ed.2d 387 (1976). The Second Circuit has reversed itself on this issue since Keating, however, and now holds that ordering consolidation when the arbitration agreement is silent violates section 4 of the FAA. United Kingdom v. Boeing . Nonetheless, the California court's analysis remains viable; although it drew an analogy between permitting consolidation and class-wide arbitration when the contract is silent, it also distinguished the two, making its case for class-wide arbitration even stronger. The California court pointed out that consolidated arbitration often involves a tripartite relationship in which the parties in dispute each have a contract with a third party, but not with each other, as opposed to class-wide arbitrations in which all plaintiffs had a contract directly with the defendant. Keating, 31 Cal.3d at 612, 183 Cal.Rptr. 360, 645 P.2d 1192. Highlighting the greater burden likely to result from ordering consolidation, the California court explained: Thus, a party may be forced into a coordinated arbitration proceeding in a dispute with a party with whom he has no agreement, before an arbitrator he had no voice in selecting and by a procedure he had not agreed to. In these respects, an order for classwide arbitration in an adhesion context would call for considerably less intrusion upon the contractual aspects of the relationship. Id. Unlike parties subjected to consolidation, the members of a class subject to classwide arbitration would all be parties to an agreement with the party against whom their claim is asserted. Id. Balancing the potential inequities and inefficiencies against resulting prejudice to the drafting party, the California court held that it was not beyond the court's authority to order class-wide arbitration in the appropriate case. The court thus left the question for the trial court to answer on a case by case basis, in its discretion, upon consideration of certain factors. [15] More recently, the California Court of Appeal for the second district reaffirmed the California Supreme Court's holding in Keating. Blue Cross v. Superior Court, 67 Cal.App.4th 42, 78 Cal.Rptr.2d 779 (Cal.App.1998), cert. denied 527 U.S. 1003, 119 S.Ct. 2338, 144 L.Ed.2d 235 (1999). The Court of Appeal discussed the rationale employed by the California Supreme Court in Keating extensively, and upheld the court's ruling in Keating on state and federal law grounds. Blue Cross. Going further than the California Supreme Court, the Court of Appeal addressed the impact of the FAA on this issue, concluding that it does not preclude application of California's class-wide arbitration rule. Id. First, the Court of Appeal held that section 4 of the FAA does not apply to state courts at all. For support, the court cited the legislative history of the FAA and several decisions of the United States Supreme Court. Id. (citing Volt Info. Sciences v. Leland Stanford Jr. University, 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989)) (stating that the Court has never held that sections 3 and 4 of the FAA apply to state courts). The Court of Appeal reasoned that the language of section 4 contemplated a petition before a district court and application of the federal rules of civil procedure. Id. at 60, 78 Cal.Rptr.2d 779 (citing Rosenthal v. Great Western Financial Securities Corp., 14 Cal.4th 394, 58 Cal.Rptr.2d 875, 926 P.2d 1061 (Cal.1996)). The court recognized the FAA would prevail over a state procedural rule if in direct conflict, but found that a state procedure that furthers the effectuation of the federal law's objectives would not conflict and should be followed. Id. at 61, 78 Cal.Rptr.2d 779 (quoting Rosenthal, 14 Cal.4th at 410, 58 Cal.Rptr.2d 875, 926 P.2d 1061). The court concluded that following state precedent allowing class-wide arbitration can further rather than defeat the FAA's goal of enforcing agreements to arbitrate and is, therefore, not preempted by section 4 of the FAA. Blue Cross. [16]