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Circuit City Stores, Inc. v. Gentry, No. 07-998 (U.S. Mar. 31, 2008, cert. denied)


This is probably going to make a lot of management lawyers choke up, but the Supreme Court has taken a pass on one of their pet issues:  Whether class actions may be forfeited in a mandatory arbitration agreement, or whether such clauses may be severed from the agreement on state law grounds on unconscionability.  Circuit City Stores, Inc. v. Gentry, No. 07-998 (U.S. Mar. 31, 2008, cert. denied).

Gentry challenged the applicability of a mandatory arbitration policy to his California state law wage-and-hour claim, arguing (among other things) that the provision barring class arbitration was unconscionable. The employer prevailed in the California Court of Appeals but its victory was tossed by the California Supreme Court: Gentry v. Circuit City Inc., S141502 (Cal. Aug. 30, 2007).

On Circuit City's petition for writ of cert, here were the questions presented:

1. Whether the Federal Arbitration Act permits a court to refuse to enforce an agreement calling for individual arbitration based on state labor law policies that do not apply generally to "any contract." 9 U.S.C. § 2.

2. Whether the Federal Arbitration Act permits a state court to refuse to enforce an agreement to arbitrate based upon an unconscionability analysis "that takes its meaning precisely from the fact that a contract to arbitrate is at issue." Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987).

Although neither question specifically references the class-arbitration issue, the clear object of this appeal was to get California state courts -- which have cultivated an unusually robust law of unconscionability -- to back off of shredding agreements that (by management's lights) are fully enforceable under the Federal Arbitration Act.

This was the management bar's best chance in a decade to get this issue heard:  (1) U.S. Supreme Court most pro-business in generations; (2) Court has an gourmand's appetite for arbitration and employment law issues; (3) the distinguished Carter G. Phillips, Esq. of Sidley Austin was counsel of record for the petitioner, joined by three amici urging that certiorari be granted; (4) it's the California Supreme Court, for pete's sakes, issuing a 4-3 decision.  But there it is.  Perhaps having already filled the buffet plate with cases in this area, the Court has decided to finish what is already set before it (although it also granted cert on yet another public-employee union fee case today, Ysursa v. Pocatello Ed. Assn., No. 07-869).

At an ABA conference I attended and spoke at in Tucson last week, no less a defense eminence than Paul Grossman (partner in the Los Angeles office of Paul Hastings) told the assembly that the unresolved class-action arbitration issue has so far arrested employers' interest in adopting mandatory arbitration policies.  (Perhaps this is mainly a California thing, but the California labor force of any major employer is liable to be huge and will cause headaches as long as California's courts continue to approve or demand class arbitrations.)  I guess they'll have to keep waiting, eh.

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