Arbitration—Does Italian Colors Settle California Law?
Italian Colors: Price is No Object
First there was Concepcion. As everyone knows, Concepcion overruled Discover Bank, thereby confirming that a class action waiver was not unconscionable as a matter of law. Speculation followed regarding whether Concepcion provided room for any other defense to the enforceability of an arbitration provision containing a class waiver, the most popular being that compelling arbitration would effectively serve as a prospective waiver of a party’s right to pursue statutory remedies (due to practicalities such as cost). The Supreme Court, however, quickly put an end to the speculation in American Express Co. v. Italian Colors Restaurant, — U.S.–, 133 S. Ct. 2304 (2013). There, the Court recognized that an arbitration provision that absolutely forbids the assertion of specific statutory rights may be unenforceable. Id. at 2310, citing, Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). It also noted that perhaps a situation where filing fees were so high as to make access to the forum impractical may invalidate an arbitration provision or the class waiver portion of one. Id.,citing Green Tree Financial Corp.-Ala v. Randolph, 531 U.S. 79 (2000). “But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” Id. Accordingly, complex statutory claims such as alleged antitrust violations are as susceptible to arbitration as any other claim.
What Defenses Are Left?
Concepcion and Italian Colors essentially made nearly every consumer arbitration provision enforceable. But in California, one type of collective action may remain outside the scope of Concepcion—employment claims brought under the Labor Code’s Private Attorney General Act (“PAGA”) . In Gentry v. Superior Court, 42 Cal. 4th 443 (2007), the California Supreme Court arguably created a second body of law applicable in the employment context. Gentry invalidated class action waivers in employment agreements on the ground that the PAGA provides employees with a statutory right to bring a representative action. Neither Concepcion nor Italian Colors addressed such a concept. And, since Conception was decided, courts of appeal have expressed a difference of opinion as to the effect of Concepcion upon the enforceability of class action waivers in the employment context.
Two cases addressing the enforceability of class waivers in the context of PAGA are presently on appeal to the California Supreme Court: Iskanian v. CLS Transportation of Los Angeles, supra, review granted Sept. 19, 2012, S204032 (holding Concepcion requires enforcement of class action waiver when applied to a PAGA claim) and Franco v. Arakelian Enterprises (2nd Dist.Div.1), review granted Feb. 13, 2013, S207760 (holding Concepcion does not require enforcement of a class action waiver that prohibits recovery under the PAGA.). The latest appellate court to weigh in sided with Franco, finding that a class action waiver effectively prevented an employee from bringing a PAGA claim because it has to be brought on a representative basis. Brown v. Superior Court, 216 Cal. App. 4th 1302 (June 2012). Brown, notably, was decided just days before Italian Colors.
Whether PAGA claims fall within Italian Colors’ “assertion of a statutory right” exception and if so whether that exception will spill over into other areas remains to be seen. There are some issues, however, that we can move to the “settled” list post Italian Colors:
- Class waivers will be enforced in all consumer contracts regardless of legal theory unless they contain an advance waiver of a statutory right;
- Concepcion is retroactive;
- The NLRA does not repreempt the FAA (enforcing a class action waiver does not interfere with and employee’s right to collective action guaranteed under the NLRA, 29 U.S.C. §§ 157, 158);
- Nonsignatories may be bound to arbitration provisions under agency or estoppel theories.