The world is grown so bad, that wrens make prey where eagles dare not perch.” Shakespeare,  Richard III.

The Class Action Arbitration Issue

An employment law case for racial discrimination damages against a Manhattan Beach car dealership has become something of a sequel to “Alice in Wonderland.”  The issue raised on appeal was whether the trial court or the arbitrator decides whether an arbitration agreement provides for class action arbitration if the agreement itself is silent on the issue.

The Illogic of Class Action Arbitration

“Contrariwise,” continued Tweedledee, “if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”  [Lewis Carroll, Tweedledee — Alice in Wonderland]

Why would a prominent defense firm representing employers argue that class action status, or “certification” should be decided by a judge rather than an arbitrator?   In the world before Alice went down the rabbit hole, employer attorneys would almost always prefer arbitration of disputes because of the less likely risk of a “runaway” verdict.  And, it is commonly accepted that juries identify strongly with the employee.  Therefore, in Sandquist v. Lebo Automotive, heard in oral argument before the California Supreme Court on May 3, 2016, Wonderland seemed to dominate in the arguments, as the defense argued for court decisions and plaintiff argued for arbitration.  So, the most interesting question is why?

Justice Corrigan expressed frustration with repeated questioning of the Plaintiff’s counsel as she asked the employer’s advocate repeatedly:  is there an “inherent conflict” for the arbitrator to decide the class action certification when doing so would mean substantial additional billable hours for the arbitrator? The Plaintiff’s counsel evaded the question, and I for one share Justice Corrigan’s frustration.  The Chief Justice Tani Gorre Centil-Sakauye likewise peppered the Defense attorney with the inverse of the question:  was there a “policy reason” for why a judge alone is to be allowed to decide the class action certification question?  The employer’s attorney, like the Plaintiff’s attorney, dodged this question as well, instead citing a Third Circuit federal court decision not binding on the California court.  [Opalinski v. Robert Half Intern Inc.]

Observations About the Future of Class Action Arbitrations [or, There is None]

Some of my personal observations:

  1.  Self interest overcomes logic and clarity;
  2. Economics overcomes nearly every other consideration;
  3. The Federal Arbitration Act, like economics, overcomes (i.e. “pre-empts”) every inconsistent and obstructive California law, including decisions of the California Supreme Court;
  4. Attorneys lose credibility before appellate justices when they don’t give direct clear responses to direct clear questions;
  5. The question of “inherent economic conflict of interest” is the most interesting, but perhaps the least relevant ultimately.  The Federal Arbitration Act, like a great tanker plowing throw the legal waters, sweeps away all smaller craft that would challenge its course.

Class Action Arbitrations:  A Prediction and Conclusion

I hazard the prediction that the California Court will hold that arbitrators may decide the class action certification issue.  The consequence of this approach will be a retreat from the pervasive use of arbitration agreements to compel arbitration of class actions, and a more aggressive use of individual class action waivers to be signed by employees as a condition of employment.  I also predict that when this decision is reached, corporate transactional attorneys will draft new terms to arbitration agreements that require the initial decision [and subsequent decertification issues] to be made by a judge, who, if certifying, will then order the matter into arbitration.  By this tactic, the defense will at least reduce, but not eliminate, the threat of an arbitrated class action.  Finally, this case may be ultimately irrelevant for other reasons.  The Agreement was first drafted in 2000.  A sixteen year old agreement is something of a dinosaur in the rapidly evolving world of arbitration law.  The real motive by employers is to kill the class action itself by obtaining class action waivers.  Hence the decision of who certifies the class becomes moot.