When the Man Gives Him Lemons, Justice Liu Makes Lemonade

Sonic-Calabasas  A, Inc. v. Moreno, S174475 (SC Oct. 17, 2013)
 
On remand from the US Supreme Court, the California Supreme Court unanimously reverses its prior holding that an arbitration clause's waiver of rights to administrative remedies for the collection of unpaid wages renders the clause per se unconscionable. But in a 5-2 ruling, the court holds that waiver of those procedures remains a factor, among many others, that can be considered in deciding whether the contract is unconscionable.

The California Supreme Court had previously decided, in Sonic-Calabasas A, Inc. v. Moreno, 51 Cal. 4th 659 (2011) (Moreno I), that an employment agreement that required an employee to waive an administrative process for obtaining unpaid wages known as a Berman hearing was unconscionable as a matter of law, and that this categorical rule was not preempted by the Federal Arbitration Act  (“FAA”) because it did not discriminate against arbitration agreements in particular. But then that other Supreme Court decided AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S. Ct. 1740 (2011), which held that a similar California rule making waivers of the right to bring class actions per se unconscionable stood as an obstacle to the FAA's objectives and thus was preempted under § 2 of the FAA. Soon thereafter, the U.S. Supremes GVRed Moreno I for reconsideration in light of Concepcion. This is the opinion on remand.

The majority (Justice Liu, writing, joined by Chief Justice Cantil-Sakauye, and Justices Kennard, Wedegar and Corrigan), a concurring opinion by Justice Corrigan, and the dissent (Justice Baxter, writing, joined by Justice Chin) all agree that the Moreno I rule is now preempted by the FAA under the obstacle preemption logic of Concepcion. The majority go on to hold, however, that the absense of a per se rule does not end the unconscionability analysis. Even if a waiver of a Berman hearing cannot be unconscionable per se, the court can still, in a general unconscionability analysis, look to whether the purposes of the Berman statutes—facilitating accessible, affordable resolution of wage disputes—are furthered by the arbitration clause in question. Thus the surrender of the Berman protections can be considered as one factor among many in determining in general whether a contract is unconscionable—an analysis that remains viable even after Concepcion. The court remanded the case for the trial court to make that determination in the first instance.

Although Justice Corrigan joined the opinion in full, she also writes a short concurrence. Justice Corrigan explains that she would have preferred that the court clarify that the standard for unconscionability is the “shocks the conscience” test advanced by the dissent. But she agrees that the case should be remanded to apply the standard, and that waiver of the Berman procedures is one, among many, facts that can be considered in deciding whether an arbitration clause is unconscionable.

Justice Chin, joined by Justice Baxter, dissents in part. According to the dissent, the majority’s unconscionablity analysis is too amorphous. Indeed, according to Justice Chin, the standard in the majority opinion remains too hostile to arbitration, such that, as with Moreno I, it would be preempted by the FAA under Concepcion. Justice Chin would instead apply a narrow “shocks the conscience” standard to determine whether an arbitration provision is unconscionable. Because the employee in this case could not meet that standard, and in any event, he did not raise the unconscionablity issue before the trial court, the dissent says it is unnecessary to remand for the trial court to decide the issue in the first instance.

Reversed and remanded.