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Why Armendariz is worth fighting for

In the April 8, 2015 issue of the Daily Journal, highlighted from an article carrying the banner, “high court retreating from endless FAA battleground,” was the inset heading, “In 2014, the state high court began losing its will to maneuver over the terrain of FAA jurisprudence with the U.S. Supreme Court.”  The author, Steven Katz, also noted several times that emerging case authority in the area has “seriously shaken’ the foundations of Armendariz v. Foundation Health Psychcare Svcs. Inc. (2000) 24 Cal. 4th 83.  Armendariz, of course, is the bedrock of acceptable employment arbitration practice in the State of California and the progenitor of the American Arbitration Association’s (AAA) nationally honored and heeded Due Process Protocol for arbitration of employment law disputes.  In 2000 Justice Mosk in Armendariz held that the U.S. Supreme Court’s decision in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) 473 U.S. 614

“sets a standard by which arbitration agreements are to be measured, and disallows forms of arbitration that in fact compel claimants to forfeit certain substantive statutory rights,”

meaning those statutory rights such as anti-discrimination laws that serve the public interest, such as anti-discrimination laws.  Citing Cole v. Burns International Security Services (D. C. Cir 1997) 105 F3d 1465, Justice Mosk went on to say that the “beneficiaries of public statutes [like the ADEA and Title VII] are entitled to the rights and protections provided by the law” and to five minimum requirements for lawful arbitration of such rights pursuant to a mandatory employment arbitration agreement. The Armendariz court enumerated these prerequisites to enforcement: (1) provision for neutral arbitrators; (2) provision for more than minimal discovery; (3) requires a written award; (4) provides for all types of relief available in court; (5) does not require employee to pay unreasonable sums as condition to access the arbitral forum.  The seminal AAA employment Due Process Protocol, effectively superseded earlier employer efforts to impose significant arbitral fees upon the claimant, to impose onerous choice-of-law provisions, to limit or deny discovery, to limit remedies, to shorten limitations statutes, etc.

In American Express Co. v. Italian Colors Restaurant (2013) 133 S. Ct. 2304, , in a radical break from precedent, Justice Scalia’s majority decision disavowed the Mitsubishi rule requiring invalidation of arbitration agreements which prevent effective vindication of a federal statutory right. In Orwellian terminology, the majority decision asserts that

“the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

More baldly, the majority in conclusion asserted that “the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low value claims.”  [Emphasis added].

Thus, as characterized by Georgetown Law Professor J. Maria Glover in her  incisive and insightful critique of American Express /Italian Colors, soon to be published in the Yale Law Journal (Disappearing Claims and the Erosion of Substantive Law, 124 Yale L.J. 100-144 (2015)), the U.S. Supreme Court’s “new approach erodes substantive law itself by empowering private parties, through contract, to frustrate or altogether eliminate claiming in any forum, and thereby to rewrite the scope of their obligations  under substantive law.  Author Glover describes this “fundamental theoretical shift” as a change in conception of arbitration from

“a contract for procedures to achieve the efficient resolution of disputes to one of a contract for any set of procedures no matter how onerous to the arbitration of claims.” [emphasis in original]

Thereby, Glover notes, the U.S. Supreme Court actually incentivizes “private parties to use mandatory private arbitration clauses to construct procedural rules that have the foreseeable, indeed, possibly intended, consequence of preventing certain claims from being asserted at all.”  Glover, supra, 106.  “…[T]he Court has recast arbitration as a purely contractual mechanism through which [particularly given our regulatory system’s heavy reliance upon private enforcement of substantive law], private parties may craft provisions that provide them with effective immunity from substantive legal obligations.”  Previously, the Court had recognized that “freedom of contract over the locus and mechanisms of adjudication did not stretch so far as to supersede substantive law. [citation omitted].”  With American Express/Italian Colors, Glover persuasively writes, the U.S. Supreme Court has without Congressional approval endowed the private contract drafter a power to engage in “quasi-lawmaking.”  Glover, supra, 103.

Spanning courts across the country Glover notes the “one exceptional but notable source of pushback” in the jurisprudence of Justice Goodwin Liu of the California Supreme Court, remarking upon his decisions in Sonic-Calabasas A, Inc. v. Moreno, (2014) 134 S.Ct. 2724, cert. den., and more recently Iskanian v. CLS Transportation Los Angeles, LLC, (2014) 59 Cal. 4th 438, cert. den.  (2015) (upholding state law preclusion of waivers of claims under the California Labor Code Private Attorney General Act (PAGA) claims on the basis that a PAGA suit is not the kind of purely private dispute that Concepcion [AT&T Mobility, LLC v. Concepcion (2011), 131 S.Ct. 1740] found preempted).  Glover expresses grave concern that due to the “stealth” nature of this “perversion of justice,” political backlash is unlikely.  Glover, supra, 109.  Attorneys, however, are uniquely positioned to discern and protest against such assault on federal substantive law and, in Glover’s terms, “recipe for self-deregulation” [Glover, supra, 128].

As Justice Kagan wrote in her American Express/Italian Colors dissent, the FAA reflects a federal policy “favoring actual arbitration- that is, arbitration as a streamlined ‘method of resolving disputes,’ not as a foolproof way of killing off valid claims [citation omitted].”  Further,

“with the [effective vindication] rule, companies have good reason to adopt arbitral procedures that facilitate efficient and accurate handling of complaints.  Without it, companies have every incentive to draft their agreements to extract backdoor waivers of statutory rights, making arbitration unavailable or pointless.”

“…[A]lthough efficiency is clearly a good thing and must be encouraged, at the end of the day, efficiency cannot be the endgame of the process.  Rather, justice must be—that is the ultimate promise of the public justice system.”    Trevor C.W. Farrow, Civil Justice, Privatization and Democracy, Univ. of Toronto Press, 2014, p. 271.

 

Katz in his article asks whether McGill [McGill v. Citibank (2014) 232 Cal. App. 4th 753, rev. grtd.] will be the case in which the California Supreme Court announces a “complete surrender” to FAA preemption.  This author submits that much would be lost via an abandonment of Armendariz and that such is not to be hoped for by principled attorneys with regard for separation of powers and due process protections for the enjoyment of substantive statutory rights.