US judge enjoins law banning required arbitrations

SACRAMENTO -- U.S. District Judge Kimberly J. Mueller temporarily enjoined AB 51, the new state law limiting arbitration as a condition of employment, pending a Jan. 10 hearing.

"While plaintiffs filed their motion with very little time to spare and could have sought the court's intervention somewhat earlier, the court nevertheless finds plaintiffs have carried their burden, at this early stage on a tightly compressed timeline, by raising serious questions going to the merits and showing that the balance of hardship tips decidedly in their favor," Mueller wrote in her ruling issued Monday, citing Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011).

The U.S. Chamber of Commerce says the law is preempted by the Federal Arbitration Act. Chamber of Commerce of the United States v. Becerra, 2:19-cv-02456-KJM-DB (E.D. Cal., filed Dec. 9, 2019).

"It's what we were hoping for. We just wanted to make sure employers weren't at risk of civil and criminal penalties for the next week or so because the law was scheduled to go into effect on Wednesday," said the chamber's lead attorney, Donald M. Falk with Mayer Brown LLP in Palo Alto. "We wanted to have the full hearing rather than have them subject to liability for a law we don't think is going to pass review."

The order came just three days after Attorney General Xavier Becerra and Deputy Attorney General Chad A. Stegeman filed their opposition motion. Their brief stuck closely to a key argument made by Democrats in the Legislature when AB 51 was passed this year: If there is no contract, the law is not preempted by the Federal Arbitration Act.

"The court should not preliminarily enjoin enforcement of Assembly Bill 51 (AB 51) because the claim of Federal Arbitration Act (FAA) preemption is unlikely to succeed -- AB 51 neither conflicts with the FAA, nor does it even affect any agreement," they wrote in the brief filed Friday. "AB 51 is consistent with the FAA's fundamental precept that agreements to arbitrate must be consensual, not coerced,"

AB 51's author, Assemblywoman Lorena Gonzalez, D-San Diego, approved of Becerra's approach.

"The attorney general is right. The State of California has a duty to protect workers on the job, and Assembly Bill 51 simply says employers can't tell workers they will only get a job by signing away their rights," Gonzalez said in an email. "When both parties choose arbitration freely, it can be a highly effective tool. But it doesn't work when corporations say you won't be hired unless you sign away your rights, which is what 'big business' is trying to accomplish with this lawsuit."

The briefs set up the battle proponents of AB 51 and an earlier bill have said they wanted a showdown over the limits of the Federal Arbitration Act.

Gov. Jerry Brown vetoed a similar Gonzalez bill, AB 3080, in 2018. Brown cited liberal U.S. Supreme Court Justice Elena Kagan's majority opinion in Kindred Nursing Centers Ltd. Partnership v. Clark, 2017 DJDAR 4461, that appears to undercut the arguments made by AB 51's supporters.

But Cliff M. Palefsky, a plaintiffs' attorney with McGuinn Hillsman & Palefsky APC in San Francisco who has been a longtime champion of the state limiting mandatory arbitration, said the case will likely turn out to be far more complex than many people realize.

Palefsky said the arbitration act on its own does not automatically provide federal jurisdiction without an "underlying claim." In this case, he said, it's a civil rights claim under 42 U.S.C. § 1983.

"I don't believe there is federal jurisdiction here," Palefsky said. "What they're trying to use here is a 1983 claim, which means, 'You're violating our civil rights.' ... But there is no right to preemptively deprive people of their rights."

Palefsky also pointed to a portion of Becerra's brief noting well over a million workers in California are already outside the Federal Arbitration Act, including many transportation workers and those with major companies who have stopped using arbitration agreements, making it more difficult for the plaintiffs to prove the harms they claim.