ALM, July 28, 2016 – Divided Cal. Supreme Court Rules for Plaintiffs on Class Arbitration

Posted July 29th, 2016.

As appeared on ALM

SAN FRANCISCO — Siding with a plaintiff in a major arbitration-related appeal, the California Supreme Court on Thursday ruled that an arbitrator, rather than a court, should determine whether a California car dealership’s arbitration clause allows employees to arbitrate on a classwide basis. 

Writing on behalf of a 4-3 majority, Justice Kathryn Mickle Werdegar found that no “universal rule” allocates who should make the decision about whether class arbitration is available. California state law establishes no presumption that courts should decide and federal arbitration law doesn’t force a contrary result, Werdegar wrote. Ultimately, she concluded, the decision comes down to the parties’ underlying agreement.

 Dissenting Justice Leondra Kruger said the Supreme Court has indicated a preference for courts to decide the issue, and that the California decision will directly conflict with two federal appellate court decisions.

Sandquist v. Lebo Automotive presented a role reversal for arbitration cases, with plaintiffs seeking to empower arbitrators and defendants trying to keep the matter before a trial judge. This time it was defense lawyers cautioning that an arbitrator could be swayed by the financial incentive of a greater workload.

They also expressed concern about the absence of appellate review when the potential stakes are so high.

The case springs from a racial bias suit brought against Lebo Automotive, the parent company of football great John Elway’s Manhattan Beach Toyota. Timothy Sandquist, a former sales manager and long-time employee who is black, claims that he and other African-American employees were harassed and repeatedly passed over for promotions. 

He filed a class action but a trial judge forced the case into arbitration and ruled that Sandquist could move forward only with his individual claims. The California Court of Appeal for the Second District reversed in 2014 and Thursday’s majority affirmed the appellate court’s decision.

Werdegar, who was joined by Chief Justice Tani Cantil-Sakauye and Justices Goodwin Liu and Mariano-Florentino Cuéllar, found that the underlying arbitration agreement was ambiguous about who would decide whether claims could be arbitrated classwide, In such cases, she wrote, “ordinary contract principles require that the provision be construed against the drafter’s interpretation and in favor of the non-drafter’s interpretation.” 

“[Lebo Automotive] could have prepared an arbitration provision that explicitly addressed any unstated desire to have the availability of class arbitration resolved by a court, notwithstanding the otherwise broad and all encompassing language of the clause identifying matters for the arbitrator,” she wrote. “It did not.”

The decision comes as a win for plaintiff’s counsel at Sanford Heisler and Public Justice, who have been handling Sandquist’s case. Sanford Heisler partner Felicia Medina called the decision “a win for workers” since it requires employers who route disputes to arbitration to live with an arbitrator’s decision about whether to consider claims on a class basis.

In Thursday’s 11-page dissent, Kruger wrote that the availability of class arbitration was a gateway question for a court to decide under the Federal Arbitration Act. A plurality of the U.S. Supreme Court found it to be a procedural matter rather than a gateway question in 2003’s Green Tree Financial Corp. v. Bazzle. But Kruger’s dissent pointed out that the court since has issued several major arbitration decisions that point the other way.

“In light of these post-Green Tree developments, every federal court of appeals to consider the issue on the merits has concluded—in contrast to the majority’s holding today—that whether an arbitration agreement permits class arbitration is presumptively a question for the court, rather than the arbitrator,” she wrote. 

Wendy Coats of Fisher Phillips, who argued the case for Lebo Automotive in May, said that she and her client are reviewing the decision and weighing all options. She said that there is a cert petition in a separate case currently pending at the U.S. Supreme Court on the issue. The high court justices, she said “would like to answer this question, they just have not been properly asked it.”

Contact the reporter at rtodd@alm.com.

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