Adr Update

• Jurisdiction: United States,Federal,California
• Author: Hon. Michelle R. Rosenblatt (Ret.)
• Publication year: 2023
• Citation: Vol. 37 No. 3

ADR UPDATE

AUTHOR^*

Hon. Michelle R. Rosenblatt (Ret.)

In this column, I highlight the most significant arbitration decisions over the last few months, starting with cases published since the January 2023 ADR Update written by my fellow ADR Update columnist, Ramit Mizrahi. Space permitting, in my tri-yearly column, I will also share reflections on mediation, arbitration, and alternate dispute resolution.

FAA PREEMPTION

Chamber of Commerce v. Bonta, 62 F.4th 473 (9th Cir. 2023)

In what is perhaps the most significant Fair Employment and Housing Act (FEHA) case decided during this period, the Ninth Circuit held that the Federal Arbitration Act (FAA) preempts California's A.B. 51, California's end to "forced arbitration." A.B. 51, in part, adds Cal. Lab. Code § 433, which makes it a misdemeanor for an employer to require an applicant or existing employee to sign an arbitration agreement as a condition of employment. Seeking to circumvent preemption by the FAA, the California Legislature included a provision that if the parties entered into such an arbitration agreement, it would nevertheless be enforceable. See Cal. Lab. Code § 432.6(f).

In Chamber of Commerce v. Bonta, the Ninth Circuit determined that this penalty-based scheme to prevent the formation of arbitration agreements violates the equal-treatment principle inherent in the FAA, and evinces a hostility toward arbitration that is contrary to FAA's intent to encourage arbitration. Thus A.B. 51 is preempted. The State of California argued that the Court could sever the criminal provisions set forth in Cal. Lab. Code § 433 and uphold the balance of A.B. 51. However, the Ninth Circuit determined that because all of the provisions of A.B. 51 work together "to burden the formation of arbitration agreements," it could not sever section 433 under the severability clause in section 432.6(i), finding that the severability clause related only to the provisions of section 432.6. Further, the Ninth Circuit would not presume that the California Legislature wished to invalidate a generally applicable provision such as section 433. Judge Lucero's lengthy dissent questioning the preemptive scope of the FAA is worth a read. Will California's next move, if any, be to return to the Legislature? Or will California seek the attention of the U.S. Supreme Court? Stay tuned.

WAIVER

Armstrong v. Michaels Stores, Inc., 59 F.4th 1011 (9th Cir. 2023)

Two Supreme Court decisions on arbitration informed the opinion in this case. In Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), the Court held that arbitration agreements requiring individual arbitration, not class or collective arbitration, are enforceable, and in Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022), the Court concluded that the FAA restricts courts from creating arbitration-favoring procedural rules.

Teresa Armstrong signed an arbitration agreement as part of her employment with Michael's Stores. When an employment dispute arose, she filed a complaint in October 2017, which was removed to federal court. In the initial joint case management statement as well as at the case management conference, Michael's expressed its intention to compel arbitration after conducting discovery. Michael's served interrogatories and requests for production of documents regarding both Armstrong's PAGA claims as well as her individual claims. No discovery motions were filed. In 2018, the Supreme Court decided Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which held that arbitration agreements requiring individual arbitration, or class or collective arbitration, are enforceable. Two weeks after Epic Systems was decided, Michael's asked Armstrong to voluntarily dismiss her non-PAGA claims, which she refused to do. In August 2018,

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Michael's moved to compel arbitration, which the court granted. Following the confirmation of an arbitration award in Michael's favor, Armstrong appealed on the basis that Michael's waived its right to the arbitral forum because it waited too long to move for arbitration. The Ninth Circuit affirmed the district court's order compelling arbitration on the following grounds: Michael's repeatedly reserved its right to arbitration; did not ask the district court to weigh in on the merits; and did not engage in meaningful discovery. Thus, although Michael's did not immediately move to compel arbitration, its actions did not amount to a relinquishment of the right to arbitrate. The Ninth Circuit relied heavily on Morgan v. Sundance, Inc., 142 S. Ct. at 1713-14.

Hill v. Xerox Business Services, LLC, 59 F.4th 457 (9th Cir. 2023)

In Hill, another Ninth Circuit case regarding waiver, the Court found that Xerox did not express an intent to arbitrate, served extensive discovery, moved for partial summary judgment, and waited until class certification to assert its right to arbitration. Xerox relied on a futility argument, that it could not file a motion to compel arbitration without knowing what the arbitrable claims would be. The Ninth Circuit disagreed, citing to Morgan v. Sundance, Inc, 142...