In AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), decided this past April, the U.S. Supreme Court opined that the Federal Arbitration Act of 1925 preempts state laws that prohibit contracts from disallowing class action lawsuits. Following the decision in Concepcion, it has become generally understood that filing class action lawsuits would become much more difficult for consumers who have contracted to resolve potential disputes through arbitration.
Now, in Chavarria v. Ralphs Grocer Co., 2011 WL 4104856 (C.D. Cal. Sept. 15, 2011), a California federal district court ruled an arbitration clause unconscionable without referencing the ruling in Concepcion.
The Court opined that the arbitration clause at issue was a "sham," and that "[the Defendant's] arbitration policy lacks any semblance of fairness and eviscerates the right to seek civil redress, rendering it a right that exists in name only." Judge Dean Pregerson further opined that, "To condone such a policy would be a disservice to the legitimate practice of arbitration and a stain on the credibility of our system of justice."
The court noted that Defendant?grocery store forced employees to agree to arbitration before they were even hired, and that the language in the agreement made it so that, in effect, the arbitrator would always be chosen by Defendant. Moreover, Judge Pregerson said that in prohibiting institutional arbitrators in favor of retired judges, the company was stacking the deck in its favor because institutional arbitrators are more likely to be impartial.
Judge Pregerson also noted the provision's requirement by Defendant that parties equally split arbitration fees. Noting that Defendant estimated that daily fees will range from $7,000 to $14,000, he said the clause "is a model of how employers can draft fee provisions to price almost any employee out of the dispute resolution process."
"The court repeatedly used very broad language and drew upon fundamental considerations in its opinion that transcend the parties and facts before it," Judge Pregerson said. "These ideas are at the core of this entire fight over mandatory arbitration. This type of analysis can be applied to many--if not most--employer agreements."
While the Supreme Court in Concepcion has opined in favor of honoring the terms of a contracted-to arbitration clause, the Chavarria Court has held that an arbitration clause that is deemed unconscionable by the courts will likely not trigger the analysis involved under Concepcion.