Reinsurance Focus

A recent opinion of the Second Appellate District of the California Court of Appeals has reinforced the split among California courts as to the impact in California courts of the U.S. Supreme Court’s recent decisions concerning arbitration procedure. The plaintiff brought a putative class action against his employer, alleging various Labor Code violations, in California State Court. Citing the parties’ arbitration agreement and class arbitration waiver, the defendant moved to compel individual arbitration, which the trial court granted. A California appellate court reversed, relying on the California Supreme Court’s opinion in Gentry, which held that class action waivers should not be enforced if class arbitration is a more effective way to vindicate the class members’ claims than individual arbitration.

Following the reversal, the employer filed a second motion to compel arbitration, contending that the U.S. Supreme Court’s intervening decisions in Stolt-Nielsen and Concepcion effectively overruled Gentry and required individual arbitration. On appeal following the trial court’s denial of the second motion to compel, the California appellate court affirmed, concluding that Gentry remains good law. The court reasoned that Concepcion prohibits only categorical rules against class action waivers, that Concepcion did not preclude a case-specific determination such as that in Gentry, and that a class waiver which prevents an employee from vindicating certain statutory rights was unenforceable. The court also held that Stolt-Nielsen did not overrule Gentry so long as the claims would ultimately proceed in court, rather than in a class arbitration. There may be further guidance on these issues soon, since the U.S. Supreme Court has accepted review of an opinion of the Second Circuit which espoused the waiver of statutory rights theory. Franco v. Arakelian Enterprises, Inc., Case No. B232583 (Cal. Ct. App. December 4, 2012).

This post written by Michael Wolgin.

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