Arbitration—Does Italian Colors Settle California Law?

Published On August 29, 2013 | By Michele Floyd | General, Litigation
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Italian Colors: Price is No Object

ITALY FLAGFirst 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.

Arbitration Scorecard

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.


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About The Author

Michele Floyd’s practice focuses on complex business litigation, primarily representing Internet companies in federal and state litigation involving antitrust claims, state unfair competition claims, disclosure of subscriber information and other privacy-related claims and false advertising. Michele specializes in handling complex cases that involve difficult procedural issues and has extensive experience defending companies in consumer class action litigation under the unfair competition and related laws of several states, including California, Florida, Georgia, Illinois, Nevada, New York, Texas, and Washington. She has served as national counsel for clients and coordinated the defense of nationwide state litigation as well as multi-district federal litigation. Michele also assists clients, particularly internet and e-commerce clients, through often unique business and legal challenges, counseling them on regulatory compliance, multi-state advertising campaigns, promotions, distribution methods, pricing programs and general best practices aimed at minimizing the risk of litigation. She has defended and counseled clients in several industries, including the telecommunications, pharmaceutical, retail apparel, automotive, medical, and Internet industries. Her practice extends into regulatory fields, having represented clients in matters before the Federal Communications Commission, matters involving the Department of Justice and various states’ Attorney General Offices as well as state and federal agencies, such as the United States Department of Transportation and the California Department of Transportation. Previously, Michele served as Senior Legal Director, Commercial Litigation, at Yahoo! Inc., where she was responsible for managing and defending the company’s commercial litigation and counseling on general business matters such as contract disputes (including those involving Terms of Service and privacy policies), advertising and disclosures, privacy, antitrust, and audits. Before joining Yahoo!, she was a partner in the regulatory litigation practice group at a prominent national law firm where her practice focused on class action defense and spanned many industries. Michele’s services are offered to clients through ZwillGen Law LLP, an affiliate of ZwillGen PLLC.