Will Trucking Case Drive New Federal Arbitration Act Case to the Supreme Court?

** Gas Company Looks for Post-Iskanian Certiorari After California Appeals Court Invalidates Arbitration and Class Waiver Provision in its Wage and Hour case with its Truck Drivers **                                                                                                                                                                                                                                                                                                                                                                             California courts are known for their distaste for arbitration provisions – and for butting heads with the Supreme Court who has (on a number of occasions now) made clear that that the Federal Arbitration Act (FAA) (9 U.S.C. § 1) preempts California judicial rulings regarding the unconscionability of class arbitration waivers.  See e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).  The Supreme Court may get another chance to make the point, as courts in California continue with a “where there is a will – there is a way” approach to invalidating arbitration contracts.  See discussion, James v. Conceptus, Inc., 851 F. Supp. 2d 1020, 1036-37 (S.D. Tex. 2012) (concluding that, even after Concepcion, California courts continue to find arbitration forum-selection clauses unenforceable under far more stringent tests than other states).  One of the latest defendants to have their arbitration provision deemed unenforceable is Air Liquide in Garrido v. Air Liquide Indus. U.S. LP, 194 Cal. Rptr. 3d 297 (Cal. Ct. App. 2015).  However, Air Liquide has not taken it lying down – on May 3, 2016, it filed a writ of certiorari in the U.S. Supreme Court. Air Liquide Indus. U.S. LP v. Garrido, No. 15-1336, 2016 WL 2605541 (U.S.) (“Writ”).

A quick bit of history for context on the Garrido Court of Appeal decision.  Recall in Gentry v. Superior Court, 42 Cal. 4th 443 (Cal. 2007), the California Supreme Court held that a class-action waiver in an employment contract was unenforceable when the waiver would prevent employees from vindicating their rights.  The Gentry court concluded that even though individual arbitration could be a tool to enforce legal rights, in the context of the employment relationship – if each individual recovery would be modest, if an individual might be retaliated against if bringing a suit individually (rather than by merely joining a class) and if there are other real world obstacles in going it alone – then the provision would be invalid.  The practical effect of these Gentry factors made it highly unlikely that an employer arbitration provision would survive.  However, Gentry was overruled by Iskanian v. CLS Transportation Los Angeles, LLC, 327 P.3d 129 (Cal. 2014) (applying the then new rule from Concepcion).  The finding of Iskanian was that any California law that invalidated an arbitration provision was contrary to the FAA and therefore preempted.

However, in Garrido, the Court of Appeals deftly side-stepped Iskanian.  First, it determined that the FAA did not even apply to the case at hand.  194 Cal. Rptr. 3d at 302. Citing Section 1 of the FAA, which states that the FAA does not cover “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” the California Court of Appeals held that “transportation workers” fell within this exception.  (Citing Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 109 (2001)).  More specifically, the Garrido court held that the FAA carve-out did not apply to interstate truck drivers. 194 Cal. Rptr. 3d at 303.  And second, the Court of Appeals held that because the basis of the Iskanian decision was its nexus to the FAA – with that connection severed – Gentry not Iskanian governed. 194 Cal. Rptr. 3d at 304.  Finally (and not surprisingly), after applying the factor test from Gentry, the court held that the arbitration provision failed.

Air Liquide’s certiorari writ notes that the Court of Appeal’s severing of the relevant employment contract from the FAA was improper – foremost because the contract itself says that the FAA applies.  Air Liquide’s briefing notes that “the application of the Section 1 exemption directly contradicted the parties’ clear and expressly-stated intent to apply the FAA to their dispute. The Court of Appeal’s conclusion that the parties somehow intended to apply an exemption to the FAA to vitiate the very choice of law provision that they entered into, when in fact their intention was directly opposite, defied reason.” Writ at 5 – 6.  Air Liquide also criticizes the Court of Appeals decision for applying the “transport worker” exception outside of the trucking industry to it – a gas company – that just happens to transport its material from time to time.  Writ at 18 – 19.

This latter point raises an important issue that will apply to all companies who move their own products around the country – are their employees “transport workers”?  The more interesting and broader question, however, arises if Air Liquide fails on that question:  Can parties force the FAA to apply where it otherwise has no force?  Does an agreement that says the FAA “governs” carry with it those circumstances where it otherwise wouldn’t (because the FAA exempts it)? Interesting questions . . . and again – as we have blogged in the past – one that will be a test of the legacy of the arbitration jurisprudence of which the late Justice Scalia was the chief architect.

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