Arb Going Back To Cali

The U.S. Court of Appeals for the Ninth Circuit recently blocked a California law that prohibited employers from requiring their workers to resolve legal disputes in private arbitration, ruling that it conflicts with federal law. A panel affirmed the district court’s grant of a preliminary injunction barring enforcement of California’s Assembly Bill (AB) 51 with respect to arbitration agreements governed by the Federal Arbitration Act (FAA). Since 2020, California was first to ban mandatory arbitration of all employment-related disputes in the wake of the #MeToo movement. New York and New Jersey similarly passed laws prohibiting mandatory arbitration of sexual harassment and discrimination claims, but California's statute was much broader. Employers were prohibited from requiring individuals to sign as a condition of employment or employment-related benefits arbitration agreements concerning disputes arising under the California Fair Employment and Housing Act or Labor Code. In affirming the district court’s grant of a preliminary injunction, a majority of the Ninth Circuit panel used U.S. Supreme Court precedent that states rules burdening the formation of arbitration agreements are an obstacle to legislative intent of and preempted by the FAA. The court also noted the U.S. Court of Appeals for the First and Fourth Circuits reached similar conclusions when confronted with state laws that attempted to prevent parties from entering arbitration agreements. The court rejected arguments from the State of California that it should sever clauses that were deemed preempted by the FAA and leave the remainder of the law intact. The court found AB 51 could not be dissected as the statute’s provisions all work together to burden the formation of arbitration agreements and there was no authority in the legislation to sever the penalty portions of the law. If the State of California does not get a rehearing en banc or pursue further appeal, the matter will return to the district court to proceed for a final determination on the legality of AB 51. See reporting here-- https://bit.ly/3ZtxpoU and https://tinyurl.com/mvvfn6um and latest decision here-- https://tinyurl.com/54u4jukp

California's Arbitration Ban

This month, a California bill prohibiting workplace arbitration was signed into law. Effective January 1, 2020, the new law criminalizes the use of mandatory arbitration agreements by making such a practice a misdemeanor offense. It prevents allegations of discrimination, harassment, and retaliation arising under that state’s Fair Employment and Housing Act from being subject to mandatory arbitration. This action sets up a direct conflict with the Federal Arbitration Act (FAA) and clear federal policy favoring arbitration. Challenges to constitutionality of this and other states' laws of this nature are coming. In recent terms, the U.S. Supreme Court reminded states of the predominance of federal policy regarding arbitration, striking down efforts to undermine the use of arbitration. States will likely argue that an arbitration agreement covering such claims is effectively a contract that is void as a matter of public policy. It will be argued such provisions fall within the FAA’s savings language, which preserves traditional state law defenses to arbitration agreements arising out of contract formation. At least one attorney commentator recognizes the problem with this argument-- that the underlying state policy established by the statute appears to directly conflict with the FAA’s underlying purposes, making the policy itself unconstitutional. As such, an unconstitutional policy should not void a contract whose terms are consistent with federal policy regarding dispute resolution. See more here-- https://tinyurl.com/y5yld9x4 and https://tinyurl.com/y37n4pxn

Federal Preemption and Arbitration Clauses in Motor Vehicle Franchises

About a decade ago, manufacturers took advantage of policy favoring arbitration and began routinely including mandatory arbitration clauses in their dealership agreements. Whether a manufacturer can enforce mandatory arbitration in a motor vehicle franchise agreement requires an analysis of competing state and federal statutes, as well as a determination of what is a "motor vehicle." A federal district court in New York recently held the Motor Vehicle Franchise Contract Arbitration Fairness Act, 15 USC 1226, did not limit a franchisor's effort to arbitrate a dispute concerning dealer agreements for snowmobiles and all-terrain vehicles. However, the federal Fairness Act did serve to block arbitration of claims regarding the same dealer's motorcycle franchise. The dealer agreement provided any claims arising between the parties were subject to mandatory arbitration, but the parties agreed that each product line was considered to be a separate franchise. Suit was first filed in state court, seeking injunctive relief, and was removed to federal court where defendant filed a motion to compel arbitration. The court inquired whether the cause of action was subject to arbitration based on the following: (1) whether the parties agreed to arbitrate; (2) the scope of the agreement; (3) if federal statutory claims were asserted, whether Congress intended that certain claims be nonarbitrable; and (4) if not all of the claims were arbitrable, whether to stay the balance of the proceedings pending arbitration to avoid confusion and the possibility of inconsistent results. Under state law, a mandatory arbitration clause in a motor vehicle franchise agreement is converted into a consensual arbitration clause, though state law was preempted here by the Federal Arbitration Act (FAA). The federal Fairness Act defines "motor vehicle" as one primarily for use on public streets, roads and highways. This definition excluded claims related to snowmobiles and all-terrain vehicles. As for venue, interestingly, the FAA grants district courts the power to compel arbitration only within their own districts. See 9 USC 4. It is likely resolution of the arbitration will dictate how the motor vehicle-related motorcycle claims will be determined. See more here-- http://bit.ly/14qjxLI and Champion Auto Sales, LLC v. Polaris Sales Inc., 2013 U.S. Dist. Lexis 65219 (E.D.N.Y. Mar. 27, 2013)