As we discussed last May, in the AT&T Mobility v. Concepcion case, the U.S. Supreme Court determined that the Federal Arbitration Act (FAA) preempts rules created by states, such as California, that classify most class action arbitration waivers in consumer contracts as unconscionable, and overruled the California Supreme Court in Discovery Bank v. Superior Court, 36 Cal. 4th 148 (2005), on that basis. Since the advent of this opinion, federal and state courts alike have been issuing decisions interpreting the scope and significance of the Concepcion holding.
On July 11, 2011, the California Court of Appeal for the Second Appellate District issued an opinion in Brown v. Ralph’s Groceries Co., in which it held that the Concepcion ruling does not apply to actions brought under the California Labor Code’s Private Attorneys General Act of 2004 (PAGA). In Brown, the plaintiff asserted putative class action and PAGA representative action claims against her employers for alleged violations of the California Labor Code. The employment contract between the parties contained a binding arbitration agreement that specifically barred any judge or jury trials and class actions or representative actions. The defendants sought to enforce the terms of this arbitration agreement as to the plaintiff’s class and PAGA representative claims, both of which the trial court denied. On appeal, the appellate court unanimously reversed the trial court’s ruling on the class action waiver, finding that the plaintiff had failed to establish a factual basis for not enforcing the class action waiver provision as required by Gentry v. Superior Court, 42 Cal. 4th 443 (2007), but upheld, in a two to one vote, the trial court’s ruling that a PAGA representative suit was not barred by the arbitration agreement.
In his majority opinion, Judge Richard Mosk held that PAGA creates a statutory right for civil penalties that would otherwise be sought by state law enforcement, and therefore, is designed to protect the public interest and not the benefit of the private parties as is the case in class actions. He concluded that, although the right to a class arbitration may be waived in accordance with the FAA as held by the Supreme Court in the Concepcion ruling, “[Concepcion] does not provide that a public right, such as that created under the PAGA, can be waived if such a waiver is contrary to state law.” Judge Sandy Kriegler dissented regarding the PAGA ruling, noting that the majority ruling disregards the “principal purpose” of the FAA in “ensur[ing] that, private arbitration agreements are enforced according to their terms.” Judge Kriegler’s dissent notes that, since the parties had agreed to procedures of arbitration of all covered claims without resort to litigation, the agreement must be enforced under the FAA, in accordance with the Supreme Court’s ruling in Concepcion.
While the Concepcion decision may signal the overruling of prior California jurisprudence resisting the enforcement of arbitration agreements, particularly with respect to class action waivers, the Brown v. Ralph’s Grocery decision shows at least one California state court’s resistance to federal encroachment into California law. As Judge Kreigler notes, the ruling in Brown v. Ralphs may appear contrary to the reasoning underlying the Concepcion ruling. Accordingly, it remains to be seen whether future California court decisions – at both federal and state levels – will continue to cut away at a broader application of the Concepcion ruling, particularly in the context of California state employment litigation.