California Appellate Court Upholds Delegation Clause In Arbitration Agreement

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The issue before the California Appellate Court was whether the trial court erred in enforcing a delegation clause in an arbitration agreement governed by the Federal Arbitration Act (“FAA”), and granting the defendant’s motion to compel arbitration.

Plaintiff/Petitioner brought a wage and hour action against her former employer. The defendant former employer moved to compel arbitration, pursuant to a clause contained in its employee handbook. The delegation clause provided, “The arbitrator has exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this binding arbitration agreement.” Plaintiff opposed arbitration asserting that the arbitration agreement was unconscionable. Defendant, in turn, asserted that arbitration agreement contained a delegation clause providing that issues relating to the enforceability of the arbitration agreement were themselves delegated to the arbitrator for resolution. The dispute then turned to whether the delegation clause itself was unconscionable.

The appellate court upheld the trial court’s decision. The appellate court concluded a portion of the rationale underlying Murphy v. Check ‘N Go of California, Inc. (2007) 156 Cal.App.4th 138 (Murphy); Bruni v. Didion (2008) 160 Cal.App.4th 1272 (Bruni); and Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494 (Ontiveros) was no longer viable under California law. Murphy, Bruni, and Ontiveros relied on three factors to conclude that the delegation clauses at issue were substantively unconscionable: (1) they were outside the reasonable expectations of the parties; (2) they were not bilateral; and (3) they provided for decisionmaking by arbitrators who would be biased by their financial self-interest. The appellate court found that the first two factors did not apply to the delegation clause at issue and that the third factor was preempted by the Federal Arbitration Act (“FAA”). Malone v. Superior Court, B253891 (Cal. Ct. App. June 17, 2014).

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Carlton Fields Jorden Burt on:

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