In Iskanian v. CLS Transportation Los Angeles, Inc., here, the Court of Appeal for the Second District found that Concepcion overruled the Gentry test for determining the validity of a class action waiver in an arbitration clause, and required waiver of such class action rights.
The Gentry court laid out a four-factor test for determining whether a class waiver should be upheld: “when it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ rights to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘vindicate [their] unwaivable rights in an arbitration forum.’” (Id. at p. 463.) We previously remanded the instant case to the trial court with instructions to reconsider its ruling in light of this “Gentry test.” ¶ Now, we find that the Concepcion decision conclusively invalidates the Gentry test. First, under Gentry, if a plaintiff was successful in meeting the test, the case would be decided in class arbitration (unless the plaintiff could show that the entire arbitration agreement was unconscionable, in which case the agreement would be wholly void). But Concepcion thoroughly rejected the concept that class arbitration procedures should be imposed on a party who never agreed to them. (Concepcion, supra, 131 S.Ct. at pp. 1750-1751.) The Concepcion court held that nonconsensual class arbitration was inconsistent with the FAA because: (i) it “sacrifices the principal advantage of arbitration—informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment”; (ii) it requires procedural formality since rules governing class arbitration “mimic the Federal Rules of Civil Procedure for class litigation”; and (iii) it “greatly increases risks to defendants,” since it lacks the multilevel review that exists in a judicial forum. (Id. at pp. 1751-1752; see also Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp. (2010) 130 S. Ct. 1758, 1775 [“a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so”].) This unequivocal rejection of court-imposed class arbitration applies just as squarely to the Gentry test as it did to the Discover Bank rule. ¶ Second, Iskanian argues that the Gentry rule rested primarily on a public policy rationale, and not on Discover Bank’s unconscionability rationale. While this point is basically correct, it does not mean that Gentry falls outside the reach of the Concepcion decision. Gentry expressed the following reason for its four-factor test: “[C]lass arbitration waivers cannot . . . be used to weaken or undermine the private enforcement of overtime pay legislation by placing formidable practical obstacles in the way of employees’ prosecution of those claims.” (Id. at p. 464.) Concepcion, though, found that nothing in section 2 of the FAA “suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives,” which are “to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.” (131 S.Ct. at p. 1748.) A rule like the one in Gentry—requiring courts to determine whether to impose class arbitration on parties who contractually rejected it—cannot be considered consistent with the objective of enforcing arbitration agreements according to their terms. ¶ Third, the premise that Iskanian brought a class action to “vindicate statutory rights” is irrelevant in the wake of Concepcion. As the Concepcion court reiterated, “States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.” (131 S.Ct. at p. 1753.) The sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the FAA, as expressed in Concepcion. Concepcion’s holding in this regard is consistent with previously established law. (See Perry v. Thomas, supra, 482 U.S. at p. 484 [finding that § 2 of the FAA preempts Lab. Code, § 229, which provides that actions for the collection of wages “may be maintained ‘without regard to the existence of any private agreement to arbitrate’”]; Southland Corp. v. Keating (1984) 465 U.S. 1, 10-11 [holding that the California Supreme Court’s interpretation of the Franchise Investment Law as requiring judicial consideration despite the terms of an arbitration agreement directly conflicted with section 2 of the FAA and violated the Supremacy Clause]; Preston v. Ferrer (2008) 552 U.S. 346, 349-350 [holding, “when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA”].) ¶ Because this matter involves analysis of the effect of a federal law, the FAA, on a state rule, we must follow the United States Supreme Court’s lead. “‘Decisions of the United States Supreme Court are binding not only on all of the lower federal courts [citation], but also on state courts when a federal question is involved . . . .’” (Elliot v. Albright (1989) 209 Cal.App.3d 1028, 1034; see also Chesapeake & Ohio Ry. v. Martin (1931) 283 U.S. 209 [“The determination by this court of [a federal] question is binding upon the state courts and must be followed, any state law, decision, or rule to the contrary notwithstanding”]; Perkins Mfg. Co. v. Jordan (1927) 200 Cal. 667, 679 [“we must bow to the supremacy of the federal constitution in this matter as interpreted by the highest court of our country”].) ¶ Accordingly, we find that the trial court here properly applied the Concepcion holding—and properly declined to apply the Gentry test—by enforcing the arbitration agreement according to its terms. The trial court correctly found that the arbitration agreement and class action waivers were effective, and ruled appropriately in granting the motion to compel arbitration and dismissing Iskanian’s class claims.
The Iskanian court also rejected the sometimes-made argument that Concepcion does not apply to state courts.
Iskanian also argues that Concepcion does not apply in state courts. Citing to Justice Thomas’s dissent in Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 285-286 (Allied-Bruce), Iskanian surmises that if the Concepcion case had reached the United States Supreme Court from state court, Justice Thomas (who provided the fifth vote) would not have found preemption. This is pure speculation, and it is belied by Justice Thomas’s concurring opinion in Concepcion, which contains no indication that the holding should apply only in federal court (indeed, Justice Thomas asserted that the FAA has a broader preemptive effect than found by the majority). We also note that Justice Scalia, who authored the Concepcion opinion, joined in Justice Thomas’s dissent in Allied Bruce. Furthermore, following Concepcion, the United States Supreme Court has granted petitions for writ of certiorari vacating judgments arising in state courts, and directing the courts to consider Concepcion. (See Sonic-Calabasas A, Inc. v. Moreno (2011) __ U.S. __ [132 S.Ct. 496]; Marmet Health Care Center, Inc. v. Brown (2012) __ U.S. __ [132 S.Ct. 1201].)