Arbitration post-Concepcion

California lawyers have struggled for a decade to deal with the fallout from the U.S. Supreme Court's strong backing for arbitration over class actions in consumer law. The late Associate Justice Antonin Scalia's 2011 opinion in AT&T Mobility v. Concepcion held for a 5-4 majority that the Federal Arbitration Act overrides state laws prohibiting class action waivers.

UC Berkeley Law School's dean, Erwin Chemerinsky, called it one of the top 10 Supreme Court opinions of the decade.

Prominent arbitrator Cedric C. Chao of Chao ADR PC in San Francisco called the outcome substantial. "Concepcion was one of the most significant cases in the arbitration space handed down this past decade," he said in an email.

Chao added: "In addition to upholding the primacy of the Federal Arbitration Act over state law, the case highlights the policy tension between arbitration's essential nature as a private procedure intended to be faster and lower cost than court litigation and the class action procedure's goal to aggregate numerous small claims which otherwise would be uneconomical to litigate."

For the plaintiff bar, Concepcion was an earthquake. Deborah Chang, the president of Consumer Attorneys of California and the founder of Athea Trial Lawyers LLP in Hermosa Beach, said, "The Concepcion decision has been devastating to consumer claims in California. Arbitration clauses act to force consumers, employees and victims into secret forums controlled by corporations without the right to appeal."

Trial lawyers fought back, with mixed success. Marc D. Alexander, of counsel at AlvaradoSmith APC in Santa Ana and the author of the authoritative California Mediation and Arbitration blog, said two loopholes are available.

"State law has unconscionability defenses to the enforcement of contracts," meaning that if plaintiffs can keep their cases away from federal court they may be able to persuade judges that arbitration clauses are unfair. Alexander also pointed to the state's provision for representative qui tam actions under its Private Attorney General Act, known as PAGA, as a potential end-around to Concepcion in employment law cases.

A state Supreme Court decision affirmed that approach in its Iskanian opinion and the U.S. Supreme Court declined review in 2015. Iskanian v. CLS Transportation Los Angeles, LLC, B235158 (Cal. Ct. App. Feb. 19, 2015).

In 2020 Justice Arthur Gilbert of the 2nd District Court of Appeal wrote for a panel that a qui tam action involving the state's Insurance Fraud Protection Act avoids a binding arbitration agreement. The opinion "runs counter to federal trends to enforce arbitration agreements, and carves out a niche in California for qui tam cases that may avoid arbitration," Alexander wrote for the Daily Journal in December. It might also "point a way for California legislators, in furtherance of the public interest, to create private attorneys general who can avoid binding arbitration."

The Legislature acted to create an anti-arbitration law, AB 51, that took effect in 2019 to ban employers from inserting binding arbitration clauses into employment contracts and to provide civil and criminal penalties for businesses that attempt to use arbitration to resolve a broad range of labor and employment issues. The law as immediately challenged by the California Chamber of Commerce as a job killer. A U.S. district judge blocked the law with a preliminary injunction. On Dec. 10, a 9th U.S. Circuit Court of Appeals panel heard the state's attorney general argument that the law is constitutional and does not conflict with Concepcion.

Felix Shafir, who practices class action defense at Horvitz & Levy LLP, said judges remain skeptical. "In recent years, [federal] courts have repeatedly turned back efforts to invalidate an arbitration contract's class or collective action waiver," he emailed.

"Still, in PAGA cases, California courts have marched to their own drumbeat, out of step with U.S. Supreme Court arbitration precedent. They insist Concepcion does not require the enforcement of PAGA representative-action waivers. Whether the Supreme Court steps in to overturn this rule, as it has similarly done in the past with other California judicial rules that were hostile to arbitration provisions, remains to be seen."

Consumer attorney Brian S. Kabateck of Kabateck LLP said Concepcion has forced lawyers to pivot from consumer cases to employment matters where representative actions remain possible. "It's been most unfortunate. We have turned away numerous righteous consumer cases because Concepcion gave license to corporate America to steal from consumers without the threat of a lawsuit."

A Stanford Law School professor of dispute resolution, Deborah R. Hensler, said it's possible that will change. Concepcion is part of the high court's "decades-long support for using arbitration as a cudgel against employee and consumer rights," she said, but the court's doctrine "rests on interpreting the Federal Arbitration Act, not the Constitution. Hence it can be remade by congressional action.

"With both the House and Senate poised to shift to Democratic Party control, we may finally see some action to curb the unreasonable use of arbitration and allow us to join other countries in celebrating and supporting the use of arbitration between equally situated parties, such as business-to-business disputes, but precluding its use to deny workers and consumers legal rights."