On June 23, the California Supreme Court issued its first opinion upholding a class action waiver following the U.S. Supreme Court’s seminal decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Iskanian v. CLS Transportation Los Angeles LLC, Case No. S204032 (2014). In upholding a class action waiver in an arbitration agreement between an employee and his employer, the Court held that California’s so-called Gentry Rule, named after Gentry v. Superior Court, 42 Cal. 4th 443 (2007), under which such waivers had generally been found unenforceable, was contrary to the U.S. Supreme Court’s decision in Concepcion. The Court also rejected the plaintiff’s contention that class action waivers are unlawful under the National Labor Relations Act (NLRA).
The opinion is viewed in large part as a defense victory, as the Court rejected a number of arguments attempting to carve out exceptions to Concepcion’s holding that the Federal Arbitration Act (FAA) preempts state laws that purport to invalidate class action waivers in arbitration agreements on public policy or unconscionability grounds.
Although the opinion arises in the context of an employment action, it has potential implications for class action waivers in consumer arbitration agreements as well. For example, the plaintiff in Iskanian argued that the FAA does not preempt state law as long as the state law in question does not constitute a “categorical rule” against class action waivers. The Court rejected this argument, holding that the FAA preempts state laws that invalidate class action waivers even if such laws are narrowly tailored and “even if a class waiver is exculpatory in a particular case.” The Court’s holding thus appears to represent the death knell to potential new rules of law invalidating class action waivers in arbitration agreements.
Similarly, the Court also rejected the plaintiff’s argument that the NLRA’s prohibition against class action waivers in employment agreements was not preempted by the FAA because employment classes are typically smaller than consumer class actions and thus “far less cumbersome and more akin to an individual arbitration proceeding.” The Court held that “[n]othing in Concepcion suggests that its rule upholding class action waivers . . . depends on the size of the class involved.” Thus, it appears that any argument that a class action waiver does not apply to smaller consumer classes would similarly be rejected.
The Court also held, however, that claims brought in a representative capacity under the Private Attorneys General Act (PAGA) are not preempted by the FAA because such claims do not relate to private contractual disputes, but rather relate to disputes between an employer and the state.
In all, the California Supreme Court’s opinion represents a win for the enforceability of class action waivers in consumer arbitration agreements.