Unconscionability Defense Preserved by California Court

On February 28, 2012, a California appelate panel refused to enforce an arbitration provision as unconscionable in Mayers v. Volt Management Corp., _ Cal.App.4th _ (Feb. 2, 2012). That’s big news. It was not obvious that this defense survived the U.S. Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. __ (2011), when it was handed down last year.

In Mayers, the plaintiff sued his former employer, Volt Management Corp., for violation of the California Fair Employment and Housing Act, Government Code §§12900 – 12996 (“FEHA”). Rather than opposing the suit on the merits, Volt moved to compel arbitration.

The Court rejected the arguments Volt advanced in support of its motion, finding the arbitration provision unenforceable under California law:

The arbitration provisions contained in the employment application, employment agreement, and employee handbook each required that plaintiff submit employment-related claims to arbitration pursuant to the “applicable rules of the American Arbitration Association in the state” where plaintiff was employed or was last employed by defendant. Plaintiff was not provided with a copy of the controlling American Arbitration Association (AAA) rules or advised as to how he could find or review them. The provisions also failed to identify which set of rules promulgated by the AAA would apply. They further stated that the “arbitrator shall be entitled to award reasonable attorney’s fees and costs to the prevailing party.” For the reasons discussed post, such a prevailing party attorney fees term exposed plaintiff to a greater risk of being liable to defendant for attorney fees than he would have been had he pursued his FEHA claims in court.

In addressing Concepcion, which holds that state law may not prohibit arbitration “of a particular type of claim” or “rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable,” the Court explained why its decision was consistent with the Supreme Court’s ruling:

In the instant case, plaintiff opposed the motion to compel arbitration by arguing that the specific arbitration provisions before the court contained elements of procedural and substantive unconscionability, which render those elements unconscionable. Plaintiff did not argue the arbitration provisions were unenforceable under California law because they required the arbitration of a particular type of claim. Nor has plaintiff based his unconscionability argument “on the uniqueness of an agreement to arbitrate.”

Preserving the defense of unconscionability is important, particularly in the employment context. As in Mayers, employees are generally in a weaker bargaining position and cannot negotiate the terms of their employment agreements.

Unfortunately, Mayers may not not have a lasting impact. It and Sanchez v. Valencia Holding Company, LLC, _ Cal. App. 4th _ (2011), an unrelated case, were both recently accepted for review by the California Supreme Court (see here and here). Briefing on Mayers is pending while the Court resolves the following question in Sanchez:

Does the Federal Arbitration Act, as interpreted in [Concepcion], preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?

The California Supreme Court should answer this question in the negative and take a step toward affirming Mayers, a persuasive and well-reasoned decision. It would be an important victory for a group that is, at least today, too often the underdog.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.