Arbitration Cards Pulled From a Stacked Deck

The California Supreme Court has heard oral arguments in a case likely to be the ruin of a long standing exception to compelled arbitration:  that discrimination and harassment complaints may not be excluded the right of jury trial.

We could see this coming.   The U.S. Supreme Court and the California Supreme Court have for years been in tension over this very issue, but usually in the context of consumer contract litigation involving class action certification.  The issue in those cases was whether individual consumers with claims too small for individual adjudication could ban together despite having “signed” boilerplate arbitration agreements with waivers of class action participation.  The United States Supreme Court, relying on the Federal Arbitration Act, held in these cases that individual state restrictions on arbitration are pre-empted by the federal law.  The Court reached this conclusion despite the argument that State common law determined the law of contract, and specifically the enforceability of contracts.

Arbitration Case Now Moving Through Appeal

In the California Supreme Court case now pending for decision, Baltazar v. Forever 21 Inc. et al., S208345, argued January 5, 2016, the plaintiff was an employee of Forever 21 claiming egregious acts of racism and gender bias.  She also alleged her complaints to Human Resources were ignored.  The contract for arbitration contained provisions cited by Baltazar’s attorney are not that unusual in such contracts:  a one sided stated right to obtain injunctive relief, a one-sided confidentiality and trade secret requirement; and a listing of disputes subject to arbitration that the employee might have against the employer, but none that the employer might have against the employee.

Arbitration Case Precedents:  A Receding Battle Front

The cases that are the precedent and to be weighed when the court renders its written decision will be Armendariz v. Health Foundation Psychcare Services Inc. (2000) 24 Cal.4th 90 [Full Decision]; Iskanian v. CLS Transportation (June 2015) [Summary of Decision] and the U.S. Supreme Court decision in AT&T Mobility v. Concepcion (2010) [Full Supreme Court Opinion].

Concepcion struck down State court cases that held consumer class actions would not be enforced because unconscionable and grossly inequitable to consumers. In Iskanian, the California Supreme Court finally backed down in its resistance to Concepcion, holding that an arbitration agreement with class action waiver is enforceable despite arguments of unconscionability.  [But, Iskanian preserved the right of a hybrid form of class action, known as a “PAGA” case, to survive].

The long pointing finger of death is now aimed at Armendariz, the last hold out against arbitration on the argument that discrimination and harassment are uniquely pernicious instances of social misconduct that compel the preservation of a jury right as a matter of public policy.  The argument logically is that Congress in 1925, when the Federal Arbitration Act was enacted, did not intend its reach to include such cases.  But that argument falls somewhat short of the goal, as the rights that are at risk did not even exist in 1925.  Title VII was, for example, enacted in 1964 and amended in the 1970s.

Arbitration in the Aftermath of Baltazar

The Baltazar case has explosive implications for civil rights law.  If the California Supreme Court preserves the Armendariz exception, the case will surely be appealed to the U.S. Supreme Court.  There, the High Court will have to decide the same fundamental question:  Is there something inherently unique about discrimination cases that would, as a matter of such clear public policy, have been in all likelihood outside any imaginable intention of the Congress when enacting the F.A.A.?  Stated more proactively:  Did Congress at that time intend to exclude a class of cases from the reach of the FAA that were in their essential thrust not consumer or business transaction cases?

Conclusion and Prediction

I predict that California will preserve the Armendariz decision, and that the U.S. Supreme Court will reverse.  If all the appeals are taken, we can expect a final decision in 2018.