Reinsurance Focus

California’s appellate courts have had a strained relationship with the U.S. Supreme Court when it comes to enforcement of the FAA in the last few years. Illustrative of this tension is a recent decision captioned Sonic-Calabasas A, Inc. v. Moreno, No. S174475 (Cal. Oct. 17, 2013) (“Sonic II”). The Court in Sonic II was instructed by the U.S. Supreme Court to reconsider its ruling in Sonic-Calabasas A, Inc. v. Moreno, 51 Cal. 4th 659 (2011) (“Sonic I”), which invalidated an arbitration agreement.

The dispute arose from an employment wage dispute. The heart of the case was whether California’s statutory employment dispute mandatory ‘pre-screening’ process (referred to as a “Berman hearing”) could be waived by an arbitration agreement, such as the one in the employment contract at issue. In Sonic I, the Court held that an arbitration agreement that waives a Berman hearing is unconscionable and unenforceable. Shortly after Sonic I was released, the U.S. Supreme Court released its decision in AT&T Mobility LLC v. Concepcion, 563 U.S. __ [131 S.Ct. 1740] (2011) (“Concepcion”). The defendant thereafter sought review of Sonic I by the U.S. Supreme Court, which granted certiorari and reversed, citing Concepcion and the FAA’s strong presumption in favor of arbitration.

On remand, in Sonic II, the Court held that, consistent with Concepcion, “the FAA preempts our state-law rule categorically prohibiting waiver of a Berman hearing.” However, it left the trial court some wiggle room to nevertheless find the agreement unconscionable on remand, holding (and citing Concepcion) that “state courts may continue to enforce unconscionability rules that do not interfere with fundamental attributes of arbitration.”

Based on its finding that evidence relevant to such an unconscionability claim was not developed, it remanded to the trial court to determine in the first instance whether the present arbitration agreement is unconscionable.

This post written by John Pitblado.

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