Court of Appeal (Cal.) Says, after Sanchez Remand, RISC Arb. Clause is Enforceable

In Gillespie v. Svale Del Grande, Inc., 2015 WL 7307139, at *5-6 (Cal.App. 6 Dist., 2015) (unpublished), the Court of Appeal issued a lengthy opinion after remand from the Supreme Court in Sanchez that the Arbitration clause was enforceable.  The Court rejected the argument that neither the Arbitration Clause’s choice of law or poison-pill provisions negated FAA pre-emption.

The California Supreme Court disagreed that the class waiver was unenforceable. The court explained that in AT & T Mobility LLC v. Concepcion (2011) 563 U.S. 333 (Concepcion), the United States Supreme Court “held that the FAA requires enforcement of class waivers in consumer arbitration agreements and preempts state law to the contrary.” (Sanchez, supra, 61 Cal.4th at p. 909.) Based on Concepcion, the California Supreme Court determined that “the CLRA’s anti-waiver provision is preempted insofar as it bars class waivers in arbitration agreements covered by the FAA.” (Sanchez, supra, at p. 924.) The California Supreme Court accordingly held that “Concepcion requires enforcement of the class waiver” in the case before it. (Sanchez, supra, at p. 907.)  In this case, in an attempt to avoid preemption, Gillespie argues that under the parties’ contract, they agreed to apply California law. According to Gillespie, “this means the parties exercised their right to contractually agree California law applies to the interpretation of the contract, even if it would have otherwise been preempted by the FAA.”  We are not persuaded by Gillespie’s argument. The parties’ contract provides generally that “[f]ederal law and California law apply to this contract.” To the extent there is a conflict, the supremacy clause of the United States Constitution mandates that federal law preempts state law. (Washington Mutual Bank v. Superior Court (2002) 95 Cal.App.4th 606, 612.) We further observe that the arbitration clause specifically states that “[a]ny arbitration under this Arbitration Clause shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et. seq.) and not by any state law concerning arbitration.” To the extent this provision governs the interpretation of the class waiver provision at issue, the FAA and preemption are applicable.  Gillespie also argues that language in the arbitration agreement—“If a waiver of class action rights is deemed or found to be unenforceable for any reason …, the remainder of this Arbitration Clause shall be unenforceable”—means that the class action waiver is unenforceable because the CLRA prohibits class waivers. (Italics added.) The California Supreme Court considered identical language in the arbitration agreement in Sanchez and rejected this construction of the agreement. The court determined that this language “is most reasonably interpreted to permit the parties to choose class litigation over class arbitration in the event that the class waiver turns out to be legally invalid. Because we conclude in light of Concepcion that the FAA preempts … invalidation of the class waiver …, the agreement’s poison pill provision is inoperable.” (Sanchez, supra, 61 Cal.4th at p. 924.  Accordingly, the class waiver in the parties’ arbitration clause is enforceable. (Sanchez, supra, 61 Cal.4th at pp. 906, 907, 923–924) Consequently, the “poison pill” provision, which states that if the class waiver “is … found to be unenforceable” then “the remainder of this Arbitration Clause shall be unenforceable,” is not triggered. We next consider whether the parties’ arbitration clause is unconscionable as to certain provisions.

Ultimately, the Court concluded that

We have determined that the class action waiver in the parties’ arbitration agreement is enforceable, and that the agreement is not substantively unconscionable. Because both procedural unconscionability and substantive unconscionability must be shown in order to invalidate an arbitration agreement, Gillespie has not established a valid defense to the enforceability of the parties’ arbitration agreement. (Sanchez, supra, 61 Cal.4th at pp. 910, 911.) We therefore conclude that the trial court erred in denying defendant’s petition to compel arbitration.