A California grocery chain, presumably emboldened by Supreme Court decisions that appeared to sustain corporate arbitration policies used to stifle consumer and employee class actions, took a gamble and, at least in the U.S. Ninth Circuit Court of Appeals, lost. This grocer fashioned an arbitration policy, imposed on applicants for employment as a condition for receiving their applications, that: (1) ensured that when an employee demanded arbitration, the grocer would pick the sole arbitrator, and (2) required the arbitrator to obtain advance deposits in equal shares from employee and employer at the start of the arbitration, with no prospect of reapportionment based on outcome. A federal district judge in Los Angeles held this policy was unconscionable under California law, and that the Federal Arbitration Act did not pre-empt that California law, and denied the grocer’s motion to compel arbitration, thereby allowing a class action for California Labor Code violations to proceed. A unanimous panel of the Ninth Circuit has affirmed. Chevarria v. Ralphs Grocery Stores, 2013 WL 5779332 (9th Cir. Oct. 28, 2013).
Having in mind that the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) reversed a Ninth Circuit panel decision that had applied California unconscionability principles to deny enforcement of an arbitration agreement that required individual rather than class proceedings, a natural point of departure for considering Ralphs Grocery is a brief revisitation of Concepcion. The five-justice Supreme Court majority in Concepcion (the Court’s conservative bloc) was troubled by the perceived behavioral tendency of the so-called “Discover Bank Rule” (that deemed unconscionable arbitration agreements whose tendency was exculpate corporate misconduct against consumers by making small claims not worth pursuing) : in the majority’s view, corporations that did not draft their consumer agreements to allow class-wide arbitration would bear the risk that they could not require consumers to arbitrate, making the Discover Bank Rule an anti-arbitration rule. The Rule was deemed to “stand in the way of the accomplishment of the FAA’s objectives” because one of those objectives was “to facilitate streamlined proceedings.” 131 S.Ct. at 1748. That was and remains a very debatable perspective on the FAA. The Ninth Circuit in Ralphs Grocery does not challenge that premise of Concepcion, but in effect embraces it. No conceivable objective of the FAA is obstructed, the Ninth Circuit tells us, by an unconscionability rule that prohibits enforcement of an arbitration agreement designed to prevent employees from arbitrating with employers, and designed to ensure that the employer wins if the employee does arbitrate. Thus, says the Ninth Circuit panel: “Federal law favoring arbitration is not a license to tilt the arbitration process in favor of the party with more bargaining power. California law regarding unconscionable contracts, as applied in this case, is not unfavorable towards arbitration, but instead reflects a generally applicable policy against abuses of bargaining power.” 2013 WL 5779332 at *9. The Ninth Circuit also did not see the Supreme Court’s recent American Express decision as an obstacle. The arbitration policy at issue here imposed prohibitive costs upon consumers as a condition of filing an arbitration demand — requiring the employee to advance half the cost of the arbitrator’s expected fees without prospect of reapportionment after the result– whereas the costs involved in American Express were expert costs for proving a claim not for initiating the claim.
The Supreme Court of the United States might well send a message to corporate drafters of consumer arbitration clauses by denying certiorari in the Ralphs Grocery case. The Court’s temptation to dodge this case may prove irresistible, because to decide the case would conceivably require the Court to develop a new dimension of pre-emption analysis — i.e. whether the FAA applies at all to an adhesive employment agreement that requires an employee to abide by whatever arbitration policy if any that employer may impose from time to time. The best view of Ralphs Grocery may well be that no agreement to arbitrate was present because the agreement permitted the employer at any time to modify the arbitration policy or eliminate it entirely. The only agreement made by the employee was submit to the unilateral whim of the employer as it might be exerted from time to time. Within existing pre-emption doctrine, one could readily see the Supreme Court holding that this application of California unconscionability law has a disproportionate impact “on arbitration.” But the impact is, in practical terms, not upon a bilateral arbitration agreement but a unilateral employer-imposed term and condition of the application for employment. The FAA should not apply to such “arbitration,” and so pre-emption should not be an issue. It is considerably less difficult for the Supreme Court to embrace that view sub silentio by denying certiorari, than by granting certiorari and taking that bold a step in doctrine expressly.
