High Court Orders C.A. to Take New Look at Case in Which Class Arbitration Waiver Was Struck Down

Thursday, February 27, 2014

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High Court Orders C.A. to Take New Look at Case in Which Class Arbitration Waiver Was Struck Down

By a MetNews Staff Writer

The U.S. Supreme Court has ordered this district’s Court of Appeal to take another look at a ruling that invalidated a class action waiver in an arbitration agreement.

The justices issued a brief order Monday granting certiorari in Fowler v. CarMax, Inc., B238426. The court quashed the ruling of Div. One and ordered the court to reconsider the holding in light of American Express Co. v. Italian Colors Restaurant, a 2012 case in which the high court held that the prohibitively high court of arbitrating individual claims in an antitrust dispute was not, under the Federal Arbitration Act, grounds for refusing to enforce an arbitration agreement.

The case involved claims by merchants who accept American Express cards for payment. The merchants claimed that Amex violated federal antitrust laws by using its monopoly power in the credit card market to charge inflated fees.

In a 5-3 decision—Justice Elena Kagan was joined by Justices Stephen Breyer and Ruth Ginsburg in dissent, while Justice Sonia Sotomayor recused herself because she was on the Second Circuit panel that ruled for the merchants—the court said the agreement providing there was “no right or authority” to arbitrate on a “class action basis” was enforceable. Justice Antonin Scalia wrote the majority opinion.

In Fowler, decided last September, Div. One rejected CarMax’s contention that Gentry v. Superior Court (2007) 42 Cal.4th 443, which required that the validity of class action waivers in cases governed by the FAA be subjected to strict scrutiny, had been overruled by a later Supreme Court case. Gentry, like Fowler, involved wage-and-hour claims. There was no discussion of American Express.

In Fowler, the Court of Appeal, in an opinion by Justice Jeffrey Johnson, ordered the case returned to the trial court for reconsideration under Gentry. The decision reversed Los Angeles Superior Court Judge William Highberger’s ruling that Gentry no longer controlled after the U.S. Supreme Court decided AT&T Mobility, LLC v. Concepcion (2011) 131 S.Ct. 1740.

Concepcion expressly overruled Discover Bank v. Superior Court (2005) 36 Cal.4th 148, which held that arbitration provisions in consumer contracts prohibiting classwide arbitration are generally unconscionable.

Johnson, writing for the Court of Appeal in Fowler, explained:

“The court did not have before it [in Concepcion] as we do in this case, an employment agreement, which the Gentry analysis examines not for unconscionability, but rather for whether, under the circumstances in the particular case, ‘a class . . . is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration.’…A class action waiver in such an agreement will be unenforceable if the trial court ‘finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of [wage and hour] laws for the employees alleged to be affected by the employer’s violations.’…The Supreme Court did not address a situation in which an employee’s unwaivable statutory rights were involved, and therefore Concepcion does not preclude our application of a Gentry analysis.”