October 24, 2014

California versus the Supremacy Clause

By Deborah J. La Fetra Senior Attorney

In Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court once again displayed its ongoing hostility to arbitration contracts.  As we noted when the decision came down in June, the court bowed to the inevitable in acknowledging the Supreme Court’s abrogation of an earlier ruling that invalidated class action waivers in employment contracts requiring arbitration.  But the court found a new reason to invalidate arbitration contracts:  it held that employees who act as “representatives” to assert claims under the Private Attorney General Act are acting as “deputies” on behalf of the state and therefore cannot waive their right to sue in court.

This new theory runs afoul of the Federal Arbitration Act just as much as the previous theory did.  And because the Constitution’s Supremacy Clause requires federal law to take precedence over state law, CLS Transportation is asking the Supreme Court to step in, once again, to set the California courts straight.  PLF filed an amicus brief supporting the petition for writ of certiorari, noting that California’s intransigence is infecting not only contracts in this state, but nationwide, due to California’s central role in the nation’s economic activity.  The Iskanian decision creates a blueprint for mischief in other states that disdain arbitral resolution of claims, because many other states also have statutes that, like PAGA, allow employees or consumers to sue companies for alleged statutory violations.

Finally, the Legislature quickly figured out that if one statute “deputizing” citizens can invalidate arbitration contracts, other statutes could do so as well.  Last month, California Governor Jerry Brown signed into law Assembly Bill 2617, which prohibits mandatory, pre-dispute arbitration agreements in contracts for the provision of goods or services, to the extent an individual is required to waive the right to sue for violations of  two civil rights statutes.  Under federal law, employees and employers can agree to arbitrate disputes of this type.

The United States Supreme Court no doubt grows weary of playing whack-a-mole with the California courts over arbitration contracts.  But California has not yet accepted that its citizens have a federal right to freely contract for resolution of disputes outside of the costly, inefficient court system.  The Supreme Court will decide whether to hear this case in the next few months.

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