Procedural Posture

Plaintiff employee challenged a judgment from the Court of Appeal, Second Appellate District, Division Four (California), which, reversing the superior court, concluded that the parties' arbitration agreement waiving a Berman hearing under Lab. Code, §§ 98 to 98.8, was enforceable and not contrary to public policy. The California Supreme Court initially held to the contrary, and the United States Supreme Court reversed and remanded.

Overview

The employee contended that the particular arbitration scheme at issue was unconscionable. The court held that in light of recent United States Supreme Court jurisprudence, because compelling the parties to undergo a Berman hearing would impose significant delays in the commencement of arbitration, categorically imposing such a requirement was preempted by 9 U.S.C. § 2. Accordingly, the court overruled its previous contrary holding in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, which had categorically prohibited waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment. Although courts could apply unconscionability doctrine under Civ. Code, § 1670.5, to arbitration agreements, courts could not mandate procedural rules that were inconsistent with fundamental attributes of arbitration. A court applying unconscionability analysis could consider the value of benefits provided to employees by the Berman statutes in determining whether a particular arbitral scheme provided an accessible, affordable process for resolving wage disputes; moreover, a court could do so in a summary fashion under Code Civ. Proc., § 1290.2. The trial ended with the jurors receiving CACI civil jury instructions.

Outcome

The court reversed the judgment of the court of appeal and remanded with directions to remand to the trial court for further proceedings.

Procedural Posture

The court granted review after the Court of Appeal (California) granted petitioner bank's writ petition and held that the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., preempted the state law rule that class arbitration waivers were unconscionable. The court of appeal upheld the class action waiver in a complaint by real party in interest, a credit cardholder, alleging breach of contract and violation of the Delaware Consumer Fraud Act.

Overview

The credit cardholder, a California resident, alleged that the bank represented to cardholders that late payment fees would not be assessed if payment was received by a certain date, whereas in actuality they were assessed if payment was received after 1:00 p.m. on that date. The court held that when a class action waiver was found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involved small amounts of damages, and when it was alleged that the party with the superior bargaining power had carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then the waiver became in practice an exculpatory clause, in violation of Cal. Civ. Code § 1668. Under these circumstances, such waivers were unconscionable under California law and should not be enforced. The Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., did not prohibit a California court from refusing to enforce a class action waiver that was unconscionable. Remand was necessary, however, for the trial court to determine whether the Delaware choice-of-law provision required enforcement of the class arbitration waiver.

Outcome

The court reversed the judgment of the court of appeal and remanded the cause for further proceedings.