An Open Question No Longer

Malone v. Superior Court, No. B253891 (D2d3 June 17, 2014)

The court declines to issue a writ ordering the trial court to vacate an order compelling arbitration where the arbitration clause delegates questions as to the enforceability of the arbitration clause to the arbitrator. Although it isn’t cited, the opinion is more or less a retread of last month’s Tiri v. Lucky Chances decision out of the first district. 

The only difference is that in this case, plaintiff did make the argument about substantive unconscionably that gave me pause: that if the same arbitrator is to decide whether the clause is unconscionable is going to hear the merits, there is a lot of arbitrator compensation that is contingent on finding that the arb clause is enforceable. The court here takes it head on and doesn’t buy it. It says that the argument is “nothing more than an expression of a judicial hostility to arbitration, based on the assumption that a paid decision maker cannot be unbiased, and it, therefore, is wholly barred by [AT&T v. Concepcion, 563 U.S. 321 (2011)].” According to the court, a refusal to delegate the arbitration decision to a judge with a financial interest in the outcome would be a rule that facially discriminates against arbitration, so it’s preempted by the FAA.

Writ denied.

We’ll have to agree to disagree. To me, it might be anti-arbitration bias to generally distrust arbitration because the decision maker is gets paid by the parties. But it’s a whole different beast when the extent of her pay is heavily contingent on what she decides, in a way that will practically always favor one party. As I said before, we wouldn’t put up with that for a judge, and it seems like that kind of financial interest would be grounds for disqualification of an arbitrator, at least under the CAA.

As to the Concepcion point, every question of substantive unconscionability about an arbitration agreement, when framed as narrowly as possible, is going to be a question about the arbitration envisioned by the agreement. But to say that an arbitration agreement is unconscionable because it names a financially interested person as the sole arbitrator is not to have a per se anti-arbitration rule of the kind that was addressed in Concepcion. As I said in my post on Tiri, I don’t think there would be any problem at all with delegating the unconscionablity question to a different arbitrator with no financial interest in the answer. Because of this option, a rule that it is substantively unconscionable to delegate an unconsionability decision to an arbitrator who has a financial interest in the result would not pose an obstacle to the FAA’s policy in favor of  arbitration. So—particularly in light of the the California Supreme Court’s post-Concepcion jurisprudence on unconscionable arbitration agreements—I don’t think Concepcion is an issue here. 

In any event, I don’t wear a robe, so I guess I’ll have to take my licks on this issue and move on.