Courtney L. Davenport
A federal district court in California ruled an arbitration clause unconscionable without ever referencing the recent U.S. Supreme Court ruling in AT&T Mobility LLC v. Concepcion. An employer defendant had argued that Concepcion broadly endorses mandatory individual arbitration. (Chavarria v. Ralphs Grocer Co., 2011 WL 4104856 (C.D. Cal. Sept. 15, 2011).)
Calling the arbitration agreement a “sham,” the court said it gives all of the power to defendant Ralphs Grocer Co. and none to the employees who brought the wage-and-hour class action.
“Ralphs’s arbitration policy lacks any semblance of fairness and eviscerates the right to seek civil redress, rendering it a right that exists in name only,” wrote Judge Dean Pregerson. “To condone such a policy would be a disservice to the legitimate practice of arbitration and a stain on the credibility of our system of justice.”
In April, the Supreme Court held in Concepcion that class action bans in arbitration clauses are legal under the Federal Arbitration Act, preempting a California law that found the waivers unconscionable. The decision has created confusion as courts try to determine how broadly it should be applied: Does it allow all class action bans, or is the waiver limited when there is evidence that it would prevent individuals from vindicating their statutory rights?
“Overall, the early reaction to Concepcion has been that most courts have enforced arbitration clauses that ban class actions,” said Paul Bland, an attorney at Public Justice in Washington, D.C. “Chavarria is one of a number of cases that establish that if an arbitration clause is drafted in a defective or overreaching way that would have been unenforceable before Concepcion, the Concepcion case will not have any impact on it.”
Despite Ralphs’s argument that lead plaintiff Zenia Chavarria must submit to individual arbitration because plaintiffs are now prohibited from relying on state law to argue that a provision banning class actions is unenforceable, Pregerson’s decision didn’t mention Concepcion or the class action waiver.
“At first, I was a bit surprised that the court didn’t address Concepcion, given how ubiquitous that case and its implications have become in dealing with these motions,” said Glenn Danas of Los Angeles, who helped prepare the briefs. “However, the plaintiff focused her opposition less on the class action waiver and more on other features of Ralphs’s arbitration agreement. Since Concepcion did not in any way purport to deal with all of these other one-sided aspects of an employer’s agreement, Concepcion was not really the court’s focus either.”
The court noted that Ralphs forced employees to agree to arbitration before they were even hired. It also specified that the parties would each propose three arbitrators and alternate striking one down, but because Ralphs got the first strike, the “last arbitrator standing” would always be chosen by Ralphs. Moreover, Pregerson said that in prohibiting institutional arbitrators in favor of retired judges, the company was stacking the deck in its favor because institutional arbitrators are more likely to be impartial.
Pregerson was most alarmed by the Ralphs provision’s requirement that parties equally split the arbitration fees. Noting that Ralphs estimated that daily fees will range from $7,000 to $14,000, he said the clause “is a model of how employers can draft fee provisions to price almost any employee out of the dispute resolution process.”
Danas said that although the Chavarria court focused on the details of Ralphs’s particular arbitration clause—which he noted aren’t “rare or aberrant”—that won’t limit this decision’s application in other cases.
“The court repeatedly used very broad language and drew upon fundamental considerations in its opinion that transcend the parties and facts before it,” he said. “These ideas are at the core of this entire fight over mandatory arbitration. This type of analysis can be applied to many—if not most—employer agreements.”