Follow-Up to Concepcion
By Paul Dubow
The United States Supreme Court’s decision in AT&T Mobility Ltd. v. Concepcion (2011) 563 U.S. ___, 131 S.Ct 1740, had an enormous effect on California arbitration law. It specifically overruled Discover Bank v. Superior Court (2005) 36 Cal.4th 148, which had held that class action waiver provisions in adhesive consumer contracts were substantively unconscionable, holding that the ruling was preempted by the Federal Arbitration Act (FAA). Before Concepcion, Discover Bank appeared to have passed the preemption test because it applied to all contracts, not just arbitration contracts. But the Supreme Court broadened the test by holding that any state law or rule of court that disfavored arbitration was preempted, even if the law or rule applied to all contracts. And, in the view of the Court, a bar against class action waivers disfavored individual arbitrations.
After Discover Bank was overruled, there remained the California Supreme Court’s holding in Gentry v. Superior Court (2007), 42 Cal.4th 443, which barred class action waivers in adhesive employment contracts. While Discover Bank prohibited class action waivers in virtually all adhesive consumer contracts, Gentry was not quite as broad, requiring an evidentiary hearing in which the plaintiff bore the burden of demonstrating, based on four factors set out in the decision, that enforcement of a class action waiver would result in a waiver of substantive rights. Nevertheless, our Supreme Court ruled that this difference did not save the Gentry rule from preemption. Iskanian v. CLS Transportation Los Angeles LLC (2014), 59 Cal. 4th 348. The Iskanian court did hold that a rule barring waiver of the right to bring a representative action under the Private Attorney General Act (PAGA) was not preempted. That was so because the plaintiff was not bringing the action on his or her own behalf, but as the representative of the State, and agreements requiring the waiver of PAGA rights would harm the State’s interest in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations.