What is the effect of the U.S. Supreme Court’s invalidation of a California rule imposed to refuse enforcement of arbitration provisions upon similar cases?

Posted in: Arbitration, Employment Law by Steven Vartabedian on

The U.S. Supreme Court found in At&t Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] that a California Supreme Court rule stated in that case, which found the arbitration clause agreed upon between the parties was invalid due to unconscionability, was preempted by the Federal Arbitration Act. Shortly before Concepcion, the state high court held in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal. 4th 659 (Sonic I), as a categorical rule, that it was contrary to public policy and unconscionable for an employer to require as part of an arbitration clause that employee waive the right to a “Berman” hearing, which had been provided by the state legislature to assist employees in recovering wages claimed owed by the employer. Very predictably, the U.S. Supreme Court granted certiorari in Sonic I, vacated the judgment and remanded the case back to the California Supreme Court for reconsideration in light of Concepcion.

Given this directive, the state supreme court majority, in Sonic-Calabasas A Inc. v. Moreno (filed 10/17/13) S174475 (Sonic II), concluded that “because compelling the parties to undergo a Berman hearing would impose significant delays in the commencement of arbitration, we now hold, that the FAA pre-empts our state-law rule categorically prohibiting waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment.” (Slip opinion, page 2.) However, the court went on to say that state courts may continue to enforce unconscionablity rules that don’t interfere with the “fundamental attributes of arbitration”, and remanded this matter back to the trial court to allow further development of the unconscionability claim to determine whether this arbitration agreement is unconscionable.

Predictably again, the majority opinion drew very lively concurring and dissenting/concurring opinions. In spite of the 70 pages of discussion found in the majority opinion, a concurring justice astutely notes that the majority failed to clearly state what standards of unconscionability it is talking about. The majority stated that the trial court on remand should weigh the Berman advantages waived against its benefits to determine if the agreement is “unreasonably one-sided.” But as the concurring justice and the two concurring/dissenting justices agreed, the agreement would have to be “so one-sided as to shock the conscience.”

The concurring/dissenting opinion commented that our nation’s high court had admonished against “judicial hostility” towards arbitration, which had been manifested in a great variety of “devices and formulas.” It continued, “Ignoring the high court’s clear message and undeterred by another reversal, today, the majority formulates yet another device for invalidating arbitration agreements: a case-by-case, hopelessly vague, subjective, and indeterminable assessment” that requires weighing of benefits of the Berman procedure and the accessibility and affordability of the specific arbitration procedure. Finally it stated, “The majority approach is inconsistent with California law and is preempted by the FAA.” (Sonic II, concurring and dissenting opinion. slip opinion, pages 28-29.)

I see irony in the majority opinion. It rationalized its change of course from Sonic I saying that requiring a Berman hearing would “delay the commencement of the arbitration.”

By remanding the matter to the trial court for further proceedings to again determine whether the agreement is unconscionable, much greater delay will undoubtedly be caused.

During my 21 years on the appellate court, I often wondered why the state high court would, on reversal, remand matters back to the appellate court when it could simply save time by stating the inevitable in it is own order. Here, the dissent would have simply directed the matter to arbitration without further ado, which would seem to save all the parties time, expense and effort, and serve judicial economy.

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