New arbitration battle looms between state, US high courts

The California and U.S. Supreme Courts' protracted conflict over the Federal Arbitration Act's scope may soon feature a new skirmish.

California has repeatedly held its courthouse doors open to plaintiffs in cases in which defendants argue arbitration agreements prescribe a private forum. Almost as often, the nation's high court has interceded to offer its now repeated and full-throated endorsement of the FAA.

Winston & Strawn LLP now hopes that sequence will replay, in an appeal the firm argues should invalidate a 20-year state Supreme Court precedent that sets certain minimum standards for arbitration contracts purporting to bind Californians.

The firm, seeking to arbitrate a sex discrimination and wrongful termination suit brought by former partner Constance Ramos, argues the precedent singles out arbitration clauses for unduly strict review, contrary to U.S. Supreme Court instruction to place such agreements "on an equal footing with other contracts."

In November, the 1st District Court of Appeal disagreed, and the state Supreme Court declined to review the matter over the lone dissent of Justice Ming Chin. Winston & Strawn filed for certiorari in May, and last week a diverse cohort of defense-side attorneys lent support with amicus briefs.

In its petition, the law firm -- represented by Orrick, Herrington & Sutcliffe LLP partners E. Joshua Rosenkranz and Lynne C. Hermle, among others -- decries the "California judiciary's persistent defiance of [the United States Supreme] Court's clear rulings on arbitration."

"For years now California's state courts have insisted on making things complex," added Washington Legal Foundation in its amicus brief. "They have upheld state laws that disfavor arbitration; invented reasons to let state law obstruct the FAA; created rules that apply only to arbitration clauses; and, when applying ostensibly neutral rules, held arbitration agreements to a higher standard."

Winston & Strawn and its supporting amici cite a set of California holdings that have met reversal for being impermissibly unfavorable to arbitration. One split decision in 2011 struck a state rule that deemed unenforceable class action waivers in consumer arbitration agreements. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

A California Court of Appeal three years later nonetheless invalidated a class arbitration waiver as against state policy, and elicited swift U.S. Supreme Court reversal. DirecTV Inc. v. Imburgia, 136 S. Ct. 463 (2015).

"Time and again [the U.S. Supreme] Court has found it necessary to confront anti-arbitration obstructionism," Winston and Strawn's petition reads. "More often than not, the obstruction has come from a California court."

The state ruling now in dispute stipulates that employment contract arbitration clauses may only be enforced if they meet "certain minimum requirements" that ensure plaintiffs can effectively vindicate their rights in a provided private forum. Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (Cal. 2000).

Those requirements demand neutral arbitrators, sufficient discovery, a written final decision, and the guarantee that the process won't abridge any statutorily-prescribed remedies. Employers, also, must cover "all costs unique to arbitration."

Ramos, a patent practitioner, spent a turbulent three years with Winston & Strawn during which, she claims, the firm subjected her to unequal pay based on her sex, overall hostility and, eventually, wrongful termination. She brought suit under, among other provisions, California's Fair Employment and Housing Act and its Equal Pay Act.

The parties' employment agreement stipulated that disputes would be arbitrated near the firm's headquarters in Chicago, and that they would share equally all costs and fees. The agreement also stipulated that an arbitrator would have "no authority ... to substitute its judgment for, or otherwise override the determinations of" Winston & Strawn.

The Court of Appeal found those latter two conditions violated Armendariz's minimum requirements, the latter because Ramos would be unable to fully press an Equal Pay Act claim unless an arbitrator could independently consider the firm's compensation decisions as to her.

"Our Supreme Court ... sets a standard by which arbitration agreements and practices are to be measured, and disallows forms of arbitration that in fact compel claimants to forfeit substantive statutory rights," the opinion, authored by Justice Sandra L. Margulies, read. The panel's decision further confirmed that, notwithstanding subsequent U.S. Supreme decisions favoring arbitration, Armendariz remains good law.

In their amicus brief, Manatt, Phelps & Phillips LLP, partner Benjamin G. Shatz and Civil Justice Association of California general counsel Fred Hiestand disagree.

"A number of federal and California courts, as well as legal scholars, have commented that Armendariz, the bedrock decision dictating Ramos, is 'doomed,' 'condemned,' and 'preempted' by Concepcion," they wrote.

Glenn Danas, a partner with Robins Kaplan LLP who is not involved in the case but who has fought prominent arbitration cases before California's high court, views Armendariz's guarantees as reasonable, and not in conflict with the FAA.

"These requirements actually support the fundamental attributes of arbitration," Danas said in an interview Thursday. "Having a neutral arbitrator, ensuring a certain amount of discovery, and the other requirements; those are the reasons that an arbitration can be considered fair and legitimate."