California Supreme Court Clarifies Application Of Supreme Court Arbitration Holdings on State Law

Arbitration

On October 17, the Supreme Court of California held that, while the Federal Arbitration Act (FAA) preempts a California state-law rule categorically prohibiting waiver of state pre-arbitration protections in arbitration agreements, state courts may “continue to enforce unconscionability rules that do not ‘interfere[] with fundamental attributes of arbitration’” when determining whether an arbitration agreement is enforceable. Sonic-Calabasas A v. Moreno, No. S174475, 2013 WL 5645378 (Cal. Oct. 17, 2013) (citing AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011)). In light of the Supreme Court’s rulings in Concepcion and American Express v. Italian Colors, the Supreme Court of California reversed its previous ruling in Sonic-Calabasas A, Inc. v. Moreno, 51 Cal.4th 659 (2011) (Sonic I) with regard to the impact of the FAA on the waiver of state pre-arbitration proceedings and remanded the case to the trial court to determine whether the arbitration agreement in question was unconscionable on other grounds. In response to claims that the state pre-arbitration proceedings present no obstacle to accomplishing the objectives of arbitration, the court explained that the FAA does not “permit[] additional delay…from an administrative scheme [designed] to effectuate state policies unrelated to the agreement’s enforceability,” and that “[w]here a state-law rule interferes with fundamental attributes of arbitration, the FAA preempts the state-law rule.” However, while abrogating the categorical rule from Sonic I, the court held that “when faced with an unconscionability claim arising from an adhesive employment contract requiring the waiver of [the state’s pre-arbitration protections] in their entirety, [courts] must still determine whether the overall bargain was unreasonably one-sided.”